Updated June 17, 2026
See exactly what you would defer
Enter sale price, adjusted basis, and mortgage payoff to see deferred gain, any boot, and cash available for the next deal.
A 1031 exchange wins when you plan to keep investing in real estate and can find a good replacement property within the 45-day window. Paying the tax now makes more sense when you are leaving real estate, need the cash, or would otherwise rush into a mediocre property just to satisfy a deadline.
The core comparison
On a $500,000 gain, the combined federal and state tax bill might run from $130,000 to $175,000 depending on your rate and state, leaving $325,000 to $370,000 to deploy wherever you like. A 1031 lets you reinvest the full amount, but into qualifying real estate, and within 180 days. Which path produces more wealth depends on the return each option earns over time, and on how long "over time" actually turns out to be.
When a 1031 exchange wins
- You plan to stay in real estate and have identified a good replacement property.
- Your combined federal and state capital gains rate is above 25%.
- You plan to hold the replacement property for many years, giving the deferred tax more time to compound.
- You intend to do subsequent exchanges, extending deferral further.
- Your estate plan involves holding property until death so heirs may receive a step-up in basis.
When paying tax now may be preferable
- You are leaving real estate entirely and want the freed capital deployed elsewhere.
- Your gain is modest and the friction costs (QI fees, a rushed replacement purchase, a suboptimal property chosen for deadline reasons) outweigh the deferral.
- Your capital gains rate is 0% or 15% and the tax bill is manageable.
- No suitable replacement property is available within 45 days.
- You are near the end of your investment horizon with no heirs who would benefit from a stepped-up basis.
Run the numbers
The calculator shows what defers and what stays taxable based on your actual sale price, basis, mortgage, and replacement cost. Running the real numbers is the only way to make the comparison honestly.
Cross-links
See how to defer capital gains step by step, what a 1031 exchange actually is, and the full rules checklist.
This article is for educational purposes only and is not tax or financial advice. Tax rates vary by income, state, and year. Consult a CPA before making any decision based on this comparison.
See exactly what you would defer
Enter sale price, adjusted basis, and mortgage payoff to see deferred gain, any boot, and cash available for the next deal.