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1031 exchange tax savings calculator
Quantify the federal capital gains + depreciation recapture tax deferred by a 1031 exchange vs an outright sale.
Total tax deferred
Show the work
- Capital gains tax (deferred)$90,000
- Depreciation recapture (deferred)$20,000
- State tax (deferred)$26,500
Why investors keep 1031-ing forever
A 1031 exchange (Like-Kind Exchange) defers federal capital gains + depreciation recapture indefinitely if you roll proceeds into another investment property within 180 days. The tax bill on a typical investor sale is 25-35% of the gain — kicking that to the next sale, then the next, then never (step-up basis at death) is the most common path to compounding wealth in real estate.
The math the IRS runs
adjusted basis = original basis − depreciation taken
total gain = sale price − adjusted basis
recapture amount = depreciation taken (capped at gain)
LTCG gain = total gain − recapture amount
tax = recapture × 25% + LTCG × 20% + state × full gainThe 1031 rules
- Identify replacement property within 45 days of sale closing
- Close on replacement within 180 days of sale closing
- Like-kind = real for real (any investment real estate qualifies)
- Equal or greater value to defer 100% (lower → "boot" is taxable)
- Qualified Intermediary required — proceeds can't touch your bank
When NOT to 1031
- You need cash (e.g. retirement spending → step out of leverage)
- The replacement property is overpriced just to meet 180-day clock (timing pressure breeds bad deals)
- You're at low marginal rates this year (taking gains at 0% LTCG bracket beats deferral)
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