See what selling outright would cost you in tax, what a like-kind exchange defers instead, how much of it is taxable boot, and the two dates your exchange lives or dies by. Runs in your browser, nothing is saved or sent anywhere.
Estimate only. It applies the 25 percent maximum to the depreciation portion of the gain, treats the whole gain as long term, and does not model outside cash you bring into the purchase, which offsets mortgage boot dollar for dollar. Treat the mortgage boot line as a ceiling. The carryover basis line assumes every dollar of equity goes into one replacement property alongside the new loan. Confirm every figure with a qualified intermediary and your CPA before you sign anything. SealedFolio is not tax advice.
SealedFolio tracks basis, improvements, and depreciation per property so these inputs are never a guess. See how it works. More tools: all calculators.
Section 1031 of the tax code lets you roll the proceeds of one investment property into another without settling up with the IRS in between. Nothing is forgiven. The gain rides along on the new property through a carryover basis, and it keeps riding through every exchange after that. Investors who never sell for cash can push the bill out for decades, and property that passes to heirs may get a stepped up basis that clears it entirely.
Four separate taxes are sitting in a typical sale, and an exchange holds off all four: federal long term capital gains tax on the appreciation, unrecaptured Section 1250 tax at up to 25 percent on every dollar of depreciation you claimed, your state's tax on the gain, and the 3.8 percent net investment income tax. That fourth one surprises people. It is why the outright sale column above is usually worse than the mental math you did in the car.
Take the numbers loaded in the calculator. You bought a small apartment building for $350,000, put $25,000 into it, and have claimed $90,000 of depreciation. Adjusted basis: $285,000. You sell for $600,000 with $40,000 of selling costs, so the amount realized is $560,000 and the realized gain is $275,000. There is a $200,000 loan to pay off.
Sell it outright and the $90,000 of depreciation is taxed first, at 25 percent, for $22,500. The remaining $185,000 is taxed at 20 percent, another $37,000. State tax at 5 percent on the full gain adds $13,750, and the net investment income tax adds $10,450. That is $83,700 of tax, and you walk away with $276,300 in cash.
Exchange instead, take no cash out, and put at least $200,000 of new debt on the replacement, and there is no boot. The whole $83,700 stays in the deal. You go shopping with $360,000 of equity rather than $276,300, and your basis in the new property carries over rather than resetting. That difference compounds, which is the actual argument for an exchange. Whether the replacement property is worth buying is a separate question, and the cap rate calculator and cash-on-cash return calculator answer that one.
Boot is anything you walk away with that is not like-kind real property. It does not blow up the exchange. It just makes part of it taxable, and it comes in two flavours that behave very differently.
Money that reaches you rather than the replacement property. Pulling $30,000 out to redo a kitchen elsewhere, or leftover proceeds because the new property cost less than the old one. Cash boot is obvious, deliberate, and taxable up to the amount of your gain.
This is the one that catches people, because no money changes hands. If you pay off a $200,000 loan and only borrow $140,000 on the replacement, the IRS treats that $60,000 of debt relief as value received. You never saw a dollar of it, and you still owe tax on it. Bringing $60,000 of your own outside cash into the purchase cancels it out, which the calculator above does not model, so treat its mortgage boot line as a worst case.
You recognise gain equal to the total boot, capped at the realized gain. Depreciation recapture comes out of that recognised amount first at the 25 percent rate, which is the expensive end, and only what is left over gets the long term capital gains rate. So a small amount of boot is taxed harder than people expect. The rule of thumb that keeps you clean: buy equal or greater in value, move all of the equity across, and replace all of the debt you retired.
Both clocks start the day your relinquished property closes, and they run at the same time. Day 180 is not 180 days after day 45, it is 180 days after the sale. Calendar days, so weekends and holidays count, and if day 45 lands on a Sunday it is still day 45. There is no grace period and no extension, short of a federally declared disaster.
One extra catch on the back end: the 180 day window closes early if your tax return for the year of the sale is due before it. Close in November and your filing deadline arrives well inside the 180 days, so you file an extension or you lose the tail of your window. Put your closing date into the calculator above and it will give you both dates.
By day 45 the identification has to be in writing, signed, and delivered to your intermediary. You get one of three ways to do it:
The phrase misleads a lot of first timers. Like-kind is broad, not narrow: nearly all United States real property held for investment or business use trades for nearly all other United States real property. A duplex for farmland, a strip centre for a self storage facility, a leasehold with 30 years left for a fee simple lot. Quality, grade, and location do not matter.
What is out: the home you live in, a second home you mostly use yourself, property you bought to flip, because that is inventory rather than an investment, partnership interests, and foreign real estate swapped for domestic. Personal property has been excluded since the 2017 tax law, so equipment, vehicles, and artwork no longer qualify. Note too that several states, California among the better known, track the deferred gain when you exchange into an out of state property and come looking for it when you eventually sell.
Two things have to be right or the deferral fails, regardless of how good your numbers are.
First, a qualified intermediary has to hold the proceeds from the moment your sale closes. If the money touches your account, even overnight, it is a taxable sale. The intermediary also cannot be a disqualified person, which rules out your attorney, CPA, real estate agent, or employee if they have acted for you in the past two years. Line one up before you go under contract, not after.
Second, file Form 8824 with your return for the year the sale closed, even if you owe nothing at all. It records the transfer and identification dates, the values on both sides, any boot, and the carryover basis. Meanwhile the replacement property picks up where the old one left off on your Schedule E: the carried over basis keeps depreciating on the original schedule, and only the extra you paid above the old property's value starts a fresh one. The Schedule E guide covers how that lands on the return.
Plenty of people start one they should have skipped. A few honest cases against:
Start with the amount realized, which is your sale price minus selling costs. Subtract your adjusted basis, meaning original purchase price plus capital improvements minus accumulated depreciation. What is left is the realized gain. Tax the depreciation portion of that gain at up to 25 percent as unrecaptured Section 1250 gain, tax the rest at your long term capital gains rate, then add your state rate and the 3.8 percent net investment income tax if it applies to you. That total is what a fully deferred exchange postpones.
Boot is anything you receive in the exchange that is not like-kind real property. Cash boot is money you pull out of the deal. Mortgage boot is debt relief: if the loan you pay off is bigger than the loan you take on the replacement property, the difference counts as value received. You recognise gain equal to the boot, capped at your total realized gain, and it is taxed with the depreciation recapture coming out first at 25 percent. Everything above the boot stays deferred.
You have 45 calendar days from the day you close on the property you sell to identify replacement property in writing to your qualified intermediary, and 180 calendar days from that same closing to take title to it. Both clocks run at the same time, so day 180 is not 180 days after day 45. Weekends and holidays do not extend either one. The 180 day window also ends early if your tax return for the year of the sale is due first, which is why an exchange that starts late in the year usually needs a filing extension.
Take what you originally paid for the property, add the capital improvements you made over the years, such as a new roof or an addition, then subtract every dollar of depreciation you were allowed to claim. The subtraction uses depreciation allowed or allowable, so it counts even for years you forgot to take it. That figure is your adjusted basis, and it is the number the whole gain calculation hangs on.
Yes. A fully deferred exchange postpones the unrecaptured Section 1250 gain along with the capital gain, which matters because that recapture is taxed at up to 25 percent rather than the lower long term rate. Your basis carries over to the replacement property, so the deferred recapture follows you rather than disappearing. It stays deferred through as many exchanges as you do, and heirs who receive the property may get a stepped up basis.
Since the 2017 tax law, Section 1031 covers real property only, and almost any United States real property held for investment or for use in a trade or business is like-kind to any other. You can exchange a duplex for raw land, or a retail strip for an apartment building. What does not qualify: your primary residence, a vacation home you mostly use yourself, property you hold to flip, partnership interests, and foreign real estate traded for domestic real estate.
Yes. You report the exchange on Form 8824 with your return for the year the sale closed, even when the deferred amount is the whole gain and you owe nothing. The form asks for the dates of the transfer and the identification, the value of what you gave up and what you received, any boot, and the basis that carries over to the replacement property. Skipping it is what turns a valid exchange into a taxable sale on audit.
Not while you live in it. Section 1031 is for investment and business property, and a home you occupy is neither. A residence you moved out of and rented for a genuine period can qualify, and a property you acquired in an earlier exchange and later converted to a home has its own holding rules before any Section 121 exclusion applies. This is the corner of the rules where people get caught, so get it confirmed before you close.
Yes. SealedFolio keeps each property's cost basis, capital improvements, and accumulated depreciation running year over year, which are exactly the figures this calculator asks for and exactly what your qualified intermediary and CPA will want when the exchange starts. It runs on your own machine rather than a shared cloud database.