1031 Exchange Tax Deferral Calculator

Estimate deferred capital gains tax and replacement property purchasing rules when exchanging commercial real estate.

Tax Deferral & §1250 Recapture Breakdown

1031 Exchange Tax Deferral & §1250 Recapture Calculator

Break down §1250 depreciation recapture (25%), federal long-term capital gains (15%–20%), NIIT (3.8%), and state taxes, with automatic 45-day and 180-day deadline calculators.

Mandatory Tax Disclosure: 2026 federal capital gains brackets reflect IRS Rev. Proc. 2025-32. Unrecaptured §1250 depreciation recapture (lesser of total realized gain or cumulative depreciation) is modeled under IRC §1250 and Thomson Reuters Tax standards. State tax rates (example 5% illustrative) range from 0% to 13.3% depending on jurisdiction. Always consult a Qualified Intermediary (QI) and licensed CPA before executing an exchange.

1. Property Sale & Tax Parameters

Relinquished Property Sale Price ($)

Original Purchase Cost Basis ($)

Cumulative Depreciation Taken ($)

Selling Expenses & Broker Commissions ($)

Tax Filing Status

Estimated Total MAGI (incl. gain)IRC §1411

NIIT taxable base: min(gain, MAGI − $250k threshold) = $389,500

Federal Capital Gains Rate

State Tax Rate (5% Example)

2. Statutory 1031 Deadline Calculator

Relinquished Property Closing Date

45-Day Identification DeadlineDec 26, 2026Strict calendar days by midnight (no extensions)

180-Day Exchange Completion DeadlineMay 10, 2027Must close & title replacement asset

10-Point Tax Deferral Summary

Total Estimated Tax Deferred via 1031

$105,901

Effective Tax Rate:27.2% of realized gain

1. Adjusted Cost Basis:$433,000

2. Net Sale Proceeds:$822,500

3. Total Realized Capital Gain:$389,500

• §1250 Depreciation Recapture Part:$132,000

• Remaining Long-Term Gain:$257,500

Four Tax Component Breakdown

4. §1250 Recapture Tax (Flat 25%):$33,000

5. Federal Capital Gains Tax (15%):$38,625

6. Net Investment Income Tax (3.8% NIIT · on $389,500 base):$14,801

7. State Capital Gains Tax (5% Example):$19,475

8. Total Tax Liability without 1031:$105,901

100% Full Deferral Reinvestment Rules:

Replacement property purchase price must be ≥ $875,000 and all net cash equity ($822,500) must be reinvested through your Qualified Intermediary (QI). Retaining cash or debt reduction triggers taxable boot.

1031 Exchange Statutory Timeline Rules

Strict IRS Calendar Day Deadlines (Non-extendable)

Day 0: Sale ClosesStart of Exchange Clock

Relinquished property title is transferred. All proceeds must be held directly by a Qualified Intermediary (QI).

Day 45: IdentificationStrict 45-Day Window

Must identify replacement properties in writing to QI (3-Property Rule or 200% Value Rule).

Day 180: Purchase ClosesFinal Closing Deadline

Must close title on identified replacement property within 180 days or tax filing date (whichever is earlier).

Key Statutory 1031 Timeline Rules:

Both periods generally begin on the date the relinquished property is transferred.
The 45-day identification period and 180-day exchange period run concurrently (total 180 calendar days, NOT 45 + 180).
Deadlines are generally measured in calendar days, including weekends and holidays.
The exchange deadline may occur earlier if the taxpayer’s return is due before Day 180 unless a valid extension is filed.
Deadlines are generally strict; consult a qualified intermediary and tax adviser.

This diagram is for general informational purposes only and does not constitute legal or tax advice. Always confirm exact deadlines with a Qualified Intermediary (QI) and CPA.

What Is a 1031 Exchange and Why It Matters

Under Section 1031 of the Internal Revenue Code (IRC Section 1031), commercial and investment real estate owners can defer paying capital gains tax and depreciation recapture tax upon selling a property, provided the proceeds are reinvested into a "like-kind" replacement property of equal or greater value. A 1031 Exchange is one of the most powerful wealth-building mechanisms in commercial real estate, enabling investors to keep 100% of their equity working for them rather than forfeiting a substantial portion to taxes. To achieve full tax deferral, two primary rules apply: 1. The replacement property purchase price must be equal to or greater than the net sales price of the relinquished property (Sale Price minus Selling Costs). 2. All net cash equity from the sale must be reinvested into the replacement property.

The 1031 Tax Breakdown Formulas

Adjusted Basis = Original Purchase Basis − Cumulative Depreciation Taken
Net Sale Proceeds = Sale Price − Selling Expenses & Fees
Total Realized Gain = Net Sale Proceeds − Adjusted Basis
§1250 Recapture Gain = min( Total Realized Gain, Cumulative Depreciation )
Remaining Long-Term Gain = Total Realized Gain − §1250 Recapture Gain

Total Tax Liability = (§1250 Gain × 25%) + (Remaining Gain × Federal LTCG %) + (Total Gain × 3.8% NIIT) + (Total Gain × State Tax %)

Sale Price:Gross contract sales price of the relinquished commercial property ($875,000 in worked example)

Adjusted Cost Basis:Original purchase price ($565,000) minus cumulative tax depreciation deducted over the hold ($132,000) = $433,000

Selling Expenses:Broker commissions, title insurance, legal fees, and closing escrow costs ($52,500)

§1250 Recapture:Unrecaptured Section 1250 gain taxed at a flat federal 25% rate (lesser of total gain or cumulative depreciation, per Thomson Reuters)

Federal LTCG Rate:Federal long-term capital gains tax rate: 0%, 15%, or 20% (based on IRS Rev. Proc. 2025-32 inflation brackets)

NIIT (3.8%):Net Investment Income Tax under IRC Section 1411 on net investment gains above statutory AGI thresholds

State Tax Rate:Illustrative state income tax rate (e.g., 5.0% illustrative example; varies 0% to 13.3% by state)

Comprehensive 1031 Tax Breakdown Example ($875,000 Commercial Sale)

Evaluating an $875,000 commercial property sale with $52,500 in closing costs, an original purchase basis of $565,000, and $132,000 in prior cumulative depreciation deductions (applicable to an individual investor with a Single or Married Filing Jointly tax status, where the $389,500 realized gain exceeds the statutory NIIT MAGI thresholds of $200,000 / $250,000): 1. Adjusted Cost Basis: $565,000 original basis − $132,000 cumulative depreciation = $433,000. 2. Net Sale Proceeds: $875,000 contract price − $52,500 selling fees = $822,500 net funds to escrow. 3. Total Realized Capital Gain: $822,500 net proceeds − $433,000 adjusted basis = $389,500 total taxable profit. Four-Component Tax Breakdown Without a 1031 Exchange: • §1250 Depreciation Recapture Tax (25% on $132,000): $33,000 • Federal Long-Term Capital Gains Tax (15% on remaining $257,500 gain): $38,625 • Net Investment Income Tax (NIIT 3.8% under IRC §1411): Sized as 3.8% on min(Realized Gain, MAGI − Statutory Threshold). Assuming seller MAGI of $650,000 (exceeding the Single $200k / MFJ $250k threshold by more than the gain), the full $389,500 is subject to NIIT: $14,801. Sellers with MAGI closer to the threshold pay proportionately less. • State Capital Gains Tax (5.0% illustrative example on $389,500): $19,475 • Total Estimated Tax Liability: $33,000 + $38,625 + $14,801 + $19,475 = $105,901 (an effective combined tax rate of 27.19% on the realized gain). 1031 Exchange Result: By completing a valid Section 1031 like-kind exchange through a Qualified Intermediary (QI), you defer the entire $105,901 tax bill. To achieve 100% full tax deferral, you must acquire replacement real estate with a purchase price ≥ $875,000 and reinvest all $822,500 in net sales cash equity. Taxable Boot Treatment: If an investor chooses to retain $50,000 of cash out of escrow (or reduces debt without replacing it with cash), that $50,000 is classified as taxable boot. Boot is taxed first up to realized gain under the schedule above, incurring tax on the $50,000 while the remaining $339,500 of gain continues to enjoy full tax deferral. *Sources: IRS Rev. Proc. 2025-32 (2026 inflation brackets); IRC §1250 / Thomson Reuters Checkpoint Tax Standards.*

Frequently Asked Questions

How do the 45-day and 180-day deadlines work in a 1031 exchange?

Both deadlines start on the day the relinquished property closes. You have exactly 45 calendar days to formally identify up to 3 candidate replacement properties in writing to your QI, and 180 calendar days (or until your tax filing date) to close on the acquisition. These deadlines are strictly enforced with no extensions.

What is a Qualified Intermediary (QI)?

IRS regulations strictly prohibit sellers from taking constructive receipt of sale proceeds. A Qualified Intermediary (QI) is a neutral third-party entity that holds sale funds in an escrow account and transfers them directly to the closing agent for the replacement property.

What happens if I purchase a replacement property of lower value?

If the replacement property costs less than your net sales price, or if you retain any cash equity, the difference is classified as "boot." Boot is taxable up to the amount of your realized gain.

Can I use a 1031 exchange for a primary residence?

No. IRC Section 1031 applies exclusively to property held for investment or productive use in a trade or business. Primary personal residences do not qualify (primary home capital gain exclusions fall under IRC Section 121).

The Complete 1031 Exchange Process Guide

Step-by-step walkthrough on QI selection, 45-day identification, and 180-day closing rules.

Read Guide

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