1031 exchange calculator

The realized gain is what an outright sale would report: the property's value, less exchange expenses, less the adjusted basis, which is what it cost to buy and improve less the depreciation taken. Sell for cash and the whole amount lands on this year's return.

In an exchange the gain is recognized only to the extent of boot. Boot is cash received plus net mortgage relief (the debt you were released from minus the debt you took on with the replacement), less your qualified exchange expenses such as brokerage and legal fees. The recognized gain is the smaller of the realized gain and the boot. The calculator prices exactly that slice through the same engine any other sale runs through, with the portion up to the depreciation you took taxed as unrecaptured section 1250 gain at a maximum 25%. The remainder is deferred, and deferral works by subtraction: the deferred gain comes straight off the replacement property's starting basis. A realized loss is not recognized at all: it stays in the replacement property's basis.

The exchange runs on a statutory clock, stated here as mechanism only: the replacement property must be identified in a fixed window after the relinquished property closes, and the whole exchange must close within a second, longer window that includes it. The calculator tracks neither deadline.

The calculator above opens on this exchange, so you can change any figure and watch the split move. You bought a rental property in June 2016 for $420,000, spent $30,000 improving it and took $90,000 of depreciation, an adjusted basis of $360,000. In May 2026 you exchange it. The property is worth $700,000 and exchange expenses are $45,000, so the realized gain is $295,000. Wages are $95,000, filing single.

The replacement property is worth $600,000. You take a new mortgage of $190,000 on it, the buyer assumes your $220,000 loan, and $70,000 cash comes back to you at closing. Boot: $70,000 cash plus $30,000 of net mortgage relief is $100,000, and the $45,000 of exchange expenses net against it, leaving $55,000. Recognized gain: the smaller of $295,000 and $55,000, which is $55,000. Deferred: $240,000.

Tax on the recognized slice, computed by the calculator's engine on the same income: all $55,000 is within the $90,000 of depreciation, so it is unrecaptured section 1250 gain taxed at your ordinary rate up to 25%. The tax is $12,664, and modified adjusted gross income of $150,000 stays under the $200,000 net investment income tax threshold, so the surcharge adds nothing.

Had you sold outright, the full $295,000 gain, $90,000 of it unrecaptured section 1250 gain, would pay $51,814 of income tax plus $7,220 of net investment income tax, $59,034 in total, because the bigger gain pushes income $190,000 past the threshold. The exchange leaves $46,370 unpaid this year, and the replacement property starts at $360,000: its $600,000 value less the $240,000 deferred gain.

• Real property for real property. The swap must exchange investment or business real property for other real property of like kind.
• Boot is the trigger. Cash taken out and net debt relief, less qualified exchange expenses, are taxed now, and recognized gain can never exceed the boot. Take no boot and no gain is recognized, whatever the properties are worth.
• Deferral is a basis cut, not forgiveness. The deferred gain lowers the replacement property's basis, here to $360,000, and resurfaces when that property is later sold. A deferred loss does the opposite and raises it.
• Depreciation counts twice. It lowers the adjusted basis that sizes the realized gain, and recognized gain up to the depreciation taken is unrecaptured section 1250 gain, taxed at a maximum 25%.
• Exchange expenses reduce the realized gain in both worlds and also net against the boot, so the calculator applies them on each side of the comparison.
• The deadlines are strict statutory windows, identification first and closing second. This page computes the tax arithmetic and leaves the calendar to you.