Deferred gain, boot, new basis and your 45- and 180-day deadlines.
Plan a 1031 exchange before you sell. Enter the property you are selling and the one you are buying, and this 1031 exchange calculator shows the gain you defer, any boot that would be taxed now, the basis of the new property and your 45-day and 180-day deadlines.
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How a 1031 exchange works
A 1031 exchange (named for Section 1031 of the tax code) lets you sell investment or business real estate and buy other investment real estate without paying tax on the gain now. The tax is deferred, not forgiven: the deferred gain carries into the new property through a lower basis.
- Like-kind property. Since 2018, only real property qualifies. Almost any investment real estate can be exchanged for any other: a rental house for a small apartment building, land for a commercial building. Your main home and property held mainly to resell (like flips) do not qualify.
- A qualified intermediary. You cannot touch the sale proceeds. An intermediary holds them and uses them to buy the replacement property.
- 45 days to identify the replacement property in writing, and 180 days to close on it, both counted from the day you transfer the property you sold. The 180 days end earlier if your tax return is due first, unless you file an extension.
Boot: what makes part of the gain taxable
- Cash boot: sale proceeds you keep, or that are not spent on the new property.
- Mortgage boot: taking on less debt on the new property than you paid off on the old one, unless you add your own cash to make up the difference.
The taxable part of the gain is the smaller of the gain and the total boot. To defer everything, buy property of equal or greater value, reinvest all the proceeds and replace the debt (or add cash).
Worked example
The calculator opens with a rental selling for $500,000 with $30,000 of selling costs. It cost $300,000, had $20,000 of improvements and $60,000 of depreciation, so the basis is $260,000 and the gain is $210,000. The $200,000 mortgage is paid off, leaving $270,000 of equity.
- The replacement property costs $600,000 with a $350,000 loan, so it needs $250,000 of the $270,000.
- The unused $20,000 is cash boot and is taxable now. The other $190,000 of gain is deferred.
- The new property's basis is $600,000 − $190,000 = $410,000.
- Closing on October 18, 2026 means identifying replacements by December 2, 2026 and closing by April 16, 2027.
Buy a property costing $20,000 more, or put the $20,000 in, and the whole gain is deferred. To see what the tax would be without an exchange, use the capital gains tax calculator.
Frequently asked questions
How many properties can I identify?
The usual rule is up to three properties of any value. You can identify more if their total value is no more than 200% of the property you sold, and there is a less common 95% rule. Your intermediary will tell you which one you are using.
Can I do a 1031 exchange on a fix and flip?
Usually not. Property bought mainly to resell is inventory, not property held for investment, so it does not qualify.
What happens to the deferred gain later?
It stays with the new property. If you sell without another exchange, the deferred gain (including depreciation recapture) is taxed then. Many investors keep exchanging; under current law, heirs generally get a stepped-up basis.
Do I need a lawyer or CPA?
You need a qualified intermediary before the sale closes, and it is wise to involve a CPA. Exchanges have strict rules, and a missed deadline makes the whole gain taxable.