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Calculate the potential tax savings of an IRS Section 1031 "Like-Kind" exchange. Audit your capital gains and depreciation recapture liability to see the true value of deferral.
Step-by-step breakdown of the underlying equations.
By performing a 1031 exchange, you keep $95,000 in your pocket to reinvest in a larger property. Remember: you have 45 days to identify a replacement and 180 days to close.
An IRS Section 1031 'Like-Kind' Exchange allows real estate investors to defer 100% of both federal capital gains taxes and unrecaptured Section 1250 depreciation recapture taxes when selling investment property, provided the proceeds are reinvested into one or more replacement real estate properties of equal or greater value.
Worked Example:\nAn investor sells a commercial building for $1,000,000 that was purchased for $600,000 with $50,000 in qualifying capital improvements ($650,000 adjusted basis before depreciation). Over the holding period, $100,000 of depreciation was deducted, bringing the net tax basis to $550,000.\n• Total Realized Gain: $1,000,000 − $650,000 = $350,000\n• Depreciation Recapture Tax (25% on $100,000): $25,000\n• Long-Term Capital Gains Tax (20% on $350,000): $70,000\n• Total Tax Deferred by Completing a 1031 Exchange: $95,000 to roll into the replacement asset.
The Potential Tax Deferral displays the exact dollar amount preserved for reinvestment rather than remitted to the IRS and state treasury upon sale. Use this capital to acquire higher-yield multi-family, industrial, or commercial NNN leased properties.
From the day you close on the sale of your relinquished property, you have exactly 45 calendar days to formally identify potential replacement properties in writing to your Qualified Intermediary (QI). This deadline is strict and cannot be extended under any circumstances (including weekends and federal holidays).
You must complete the acquisition and close on the replacement property within 180 calendar days of selling the relinquished property (or the due date of your tax return, whichever is earlier).
No. Section 1031 exclusively applies to property held for productive use in a trade or business or for investment. Personal residences are excluded, though primary residences may qualify for the Section 121 exclusion ($250,000 for singles, $500,000 for married couples).
If the seller takes receipt or 'constructive receipt' of any sale funds at closing, those funds are treated as taxable 'boot' and immediately trigger taxation. All transaction proceeds must be handled directly by an independent Qualified Intermediary (QI).
Real estate investors frequently chain successive 1031 exchanges throughout their lifetimes. Upon death, heirs receive a step-up in basis to fair market value under IRC Section 1014, permanently erasing decades of deferred capital gains and depreciation recapture taxes.
Data verified: September 2026