Updated June 17, 2026
See exactly what you would defer
Enter your sale price, adjusted basis, and mortgage payoff to model deferred gain, any boot, and cash available to reinvest.
A 1031 exchange defers both capital gains tax and depreciation recapture by directing all sale proceeds through a qualified intermediary into a replacement investment property. No taxable gain is recognized in the year of sale. The gain does not disappear. It is carried forward into the replacement property's lower adjusted basis. Deferral can last years, decades, or, for investors who exchange repeatedly, a lifetime.
What you would owe without a 1031
Long-term capital gains are taxed federally at 0%, 15%, or 20% depending on income. Higher earners add the 3.8% Net Investment Income Tax. Depreciation recapture is taxed separately at up to 25% under Section 1250. A typical investor faces a combined federal rate of 23% to 28%, before state taxes. These rates are set by Congress and can change. Confirm current figures with your CPA.
How the deferral is calculated
The deferred gain equals what you would have recognized in a straight sale: net sale price minus adjusted basis. Your replacement property's adjusted basis is set to its purchase price minus the deferred gain. When you eventually sell the replacement, that carried-forward gain appears in the calculation along with any new appreciation. The calculator shows this math in full.
Step-by-step: completing the exchange
- Engage a QI before closing. The exchange agreement must be signed before the relinquished property sale closes. You cannot set up an exchange retroactively after receiving proceeds.
- Sell the relinquished property. The QI receives the net proceeds directly from the title company at closing; you receive nothing.
- Identify replacement properties in writing to the QI within 45 calendar days of closing.
- Close on the replacement property within 180 calendar days. The QI wires the funds to the replacement title company.
- Report the exchange on Form 8824 with your tax return for the year of sale. No gain is recognized if the exchange is fully tax-deferred.
The value of compounding the deferred tax
Defer $200,000 in tax with a 1031 exchange and you keep that amount working in the replacement property. At a 7% annual return, that $200,000 nearly doubles in 10 years. At 20 years, it is close to four times the original amount. The compounding math is not complicated, which is why the exchange is usually worth examining before paying.
Cross-links
See what a 1031 exchange is, the qualified intermediary's role in the transaction, and how to compare paying capital gains now versus deferring.
This article is for educational purposes only and is not tax or legal advice. Tax rates are current as of the date above and subject to change. Consult a qualified tax professional before structuring any exchange.
See exactly what you would defer
Enter your sale price, adjusted basis, and mortgage payoff to model deferred gain, any boot, and cash available to reinvest.