Like-kind deferral, the 45/180-day rules, boot and recapture.
A 1031 exchange lets real-estate investors defer capital gains tax by reinvesting in like-kind property. The rules are strict, the deadlines are binary, and the IRS does not grade on a curve. This is general information, not tax advice.
Under IRS Section 1031, selling an investment property and reinvesting the proceeds into another like-kind property lets you defer the capital gains tax you would otherwise owe at closing. Done in a chain of exchanges, deferral can last for decades. Some investors have deferred the same gain through multiple properties across 30 years. The 1031 Exchange Calculator estimates the gain and what defers.
The timing is unforgiving. From your closing date, you have 45 days to identify replacement properties in writing and 180 days total to close on one. Miss either by a single day and the full gain becomes taxable. No extensions for weekends, holidays, or delayed sellers. The 1031 Timeline Calculator maps these dates from your closing day.
Any value you do not reinvest, whether cash you pocket or a reduction in mortgage debt, is called boot. Boot is taxable even inside an exchange. To fully defer, reinvest all proceeds and carry at least as much debt on the replacement as you paid off on the sale. The Boot Calculator shows what a given structure produces.
Part of your gain comes from depreciation you deducted over the years. The IRS taxes that portion separately as recapture at up to 25%, under Section 1250. A 1031 exchange defers recapture along with the rest of the gain; it comes due only when you eventually sell without exchanging. The Depreciation Recapture Calculator and Capital Gains Tax Calculator estimate what you would owe.
A 1031 exchange requires a qualified intermediary, strict adherence to both deadlines, and deliberate structuring to avoid boot. Model the numbers with these calculators. Then, before you close on anything, sit down with a qualified intermediary and a tax advisor.
Reinvesting investment-property sale proceeds into like-kind real property to defer capital gains tax under IRC Section 1031.
45 calendar days to identify replacement properties in writing, and 180 calendar days to close.
Any value not reinvested, whether cash you receive or a reduction in mortgage debt. Boot is taxable up to your gain amount.
Tax on depreciation previously deducted, taxed at up to 25% under Section 1250. A 1031 defers it; a straight sale triggers it.
No. This is educational information. Work with a qualified intermediary and a tax professional.