1031 Exchange
Calculator
Calculate your potential tax savings with a 1031 like-kind exchange. Defer capital gains and depreciation recapture taxes by reinvesting in replacement property. See exactly how much you need to reinvest for full tax deferral.
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Fill in your property sale information to calculate potential tax savings from a 1031 like-kind exchange.
Understanding 1031 Exchanges
What is a 1031 Exchange?
A 1031 exchange, named after Section 1031 of the Internal Revenue Code, allows investors to defer capital gains taxes when selling investment property by reinvesting the proceeds into a "like-kind" replacement property. This powerful tax deferral strategy has been used by real estate investors for nearly 100 years to grow wealth tax-efficiently.
Key Requirements for a Valid 1031 Exchange
- 1.Like-Kind Property: Both properties must be held for investment or business use. In real estate, most property types qualify (office, retail, multifamily, land, etc.).
- 2.Qualified Intermediary (QI): You cannot touch the proceeds. A QI must hold the funds between sale and purchase.
- 3.45-Day Identification: You must identify potential replacement properties within 45 days of selling.
- 4.180-Day Closing: You must close on the replacement property within 180 days of selling.
- 5.Equal or Greater Value: To defer all taxes, the replacement property must be equal or greater in value.
What is "Boot" in a 1031 Exchange?
"Boot" is any cash or non-like-kind property received in an exchange that doesn't qualify for tax deferral. Boot is taxable in the year of the exchange. Common sources of boot include:
- •Cash received from the exchange (not reinvested)
- •Debt reduction (if replacement property has less debt)
- •Non-real estate property received in the exchange
NYC Tax Considerations
New York City investors face some of the highest combined capital gains tax rates in the country. With federal rates up to 23.8% (including NIIT), NY State at 8.82%, and NYC at 3.876%, effective rates can exceed 35%. This makes 1031 exchanges particularly valuable for NYC property owners. Additionally, NYC has a Real Property Transfer Tax (RPTT) that applies to both the sale and purchase, though the exchange itself doesn't trigger additional RPTT beyond normal transactions.
Identification Rules
Within 45 days, you must identify replacement properties using one of these rules:
Frequently Asked Questions
Can I do a 1031 exchange on my primary residence?
No, 1031 exchanges only apply to investment or business property. Primary residences and second homes used primarily for personal use do not qualify. However, if you convert a rental property to a primary residence (or vice versa), special rules may apply. Consult a tax professional.
What happens if I miss the 45-day or 180-day deadline?
Missing either deadline disqualifies the exchange entirely. You would owe capital gains taxes on the sale as if no exchange was attempted. There are very limited exceptions for federally declared disasters. The deadlines are strictly enforced and cannot be extended.
Can I exchange into multiple replacement properties?
Yes, you can exchange into multiple replacement properties. This is common when diversifying a large single-property holding into several smaller properties. Just ensure you follow the identification rules (3-property, 200%, or 95% rule) and reinvest all proceeds and replace all debt.
What is a reverse 1031 exchange?
A reverse exchange allows you to acquire the replacement property before selling the relinquished property. This is useful in competitive markets where you need to act quickly on a purchase. Reverse exchanges are more complex and expensive, requiring an Exchange Accommodation Titleholder (EAT) to hold the new property temporarily.