1031 Exchange Calculator

How to use the 1031 exchange calculator

Enter:

• Sale price of the property you’re selling. If you want selling costs counted, enter the price net of commissions and closing costs.
• Adjusted basis: what you paid, plus improvements, minus depreciation taken. It’s on your depreciation schedule.
• Debt paid off at the sale.
• Replacement price of the property you’re buying.
• New debt, the mortgage on the replacement.

The calculator shows the realized gain, how much is deferred and how much is boot.

The 1031 exchange formulas

• Realized gain = sale price - adjusted basis
• Net equity from the sale = sale price - debt paid off
• Cash put into the replacement = replacement price - new debt
• Cash boot = net equity - cash put in (if positive)
• Mortgage boot = debt paid off - new debt, less any extra cash you added (if positive)
• Recognized (taxable) gain = the smaller of total boot or realized gain
• Deferred gain = realized gain - recognized gain

A worked example

You sell a fourplex for $500,000 (net of selling costs). Your adjusted basis is $220,000, and $250,000 of mortgage is paid off at closing. That leaves $250,000 of equity with your qualified intermediary.

• Realized gain: $500,000 - $220,000 = $280,000

Trade up. You buy a $600,000 property with a $360,000 loan.

• Cash put in: $600,000 - $360,000 = $240,000
• Cash boot: $250,000 - $240,000 = $10,000
• Mortgage boot: none, because new debt ($360,000) is more than old debt ($250,000)
• Taxable gain: $10,000
• Deferred gain: $270,000

If you’d put all $250,000 into the purchase and borrowed $350,000 instead, the boot would be zero.

Trade down. You buy a $450,000 property with a $200,000 loan, putting in all $250,000 of equity.

• Cash boot: none
• Mortgage boot: $250,000 - $200,000 = $50,000
• Taxable gain: $50,000
• Deferred gain: $230,000

Buying a cheaper property almost always creates boot.

What a good result looks like

For most small landlords, a good result is zero boot, or a small amount of boot you’ve chosen on purpose because you want some cash out and are willing to pay tax on it. If the calculator shows boot you didn’t expect, change the replacement price or the loan amount until it goes away, or decide the cash is worth the tax.

Then weigh the deferred gain against the cost of the exchange. Intermediary fees, the pressure of the 45-day window and the risk of overpaying for a replacement are real. On a small gain, paying the tax and keeping your options open can be the better trade.

Limits and caveats

• Like-kind means real property held for investment or business use. Since 2018, personal property no longer qualifies. Your own home and property held mainly for resale (flips) don’t qualify.
• Same taxpayer. The name on the title of the property you sell generally has to match the buyer of the replacement.
• Basis carries over. The deferred gain is built into the new property’s basis, which means smaller depreciation deductions than if you’d bought it fresh.
• Boot is taxed in layers. Depreciation recapture comes first, then capital gain. The calculator shows the amount of boot, not the tax on it.
• States differ. Most states follow federal 1031 rules, and some track exchanges out of state.
• This is a planning estimate, not tax advice. Use a qualified intermediary and a tax professional for the real exchange.