1031 Exchange Calculator

About 1031 Exchange Calculator

Calculate tax deferral in a 1031 exchange. This calculator provides instant results with step-by-step explanations to help you understand the calculation process.

How to use this calculator

1. Enter the sale price, adjusted basis, and selling costs for the relinquished property.
2. Choose the tax rate you want the calculator to use for the estimate.
3. Run the calculation to see the estimated capital gain and the tax deferral amount.
4. Review the result as an estimate and compare it with your own tax or legal guidance.

The formula explained

• \(tax_deferral\) = estimated tax saved or postponed by completing the exchange
• \(capital_gain\) = taxable gain before the exchange is applied
• \(tax_rate\) = applicable capital gains tax rate used in the estimate
• \(sale_price\) = price received when the property is sold
• \(adjusted_basis\) = original cost plus improvements, minus depreciation and other adjustments
• \(selling_costs\) = expenses paid to sell the property

Step by step method

1. Find the property's adjusted basis, which is the tax basis after allowable adjustments.
2. Subtract the adjusted basis and selling costs from the sale price to estimate the capital gain.
3. Multiply that gain by the tax rate to estimate the tax being deferred through the 1031 exchange.
4. Use the result as a planning figure, not as a substitute for professional tax advice.

Worked example

Suppose an investor sells a rental property and wants a quick estimate of the tax deferred by using a 1031 exchange.

1. The property sells for \$500,000, the adjusted basis is \$320,000, and selling costs are \$20,000. Estimated capital gain is \(500,000 - 320,000 - 20,000 = 160,000\).
2. Using a 25 percent tax rate, estimated tax deferral is \(160,000 \times 0.25 = 40,000\).

Tips and common mistakes

• Use adjusted basis, not the original purchase price, if the property has depreciation or improvements.
• Include selling costs so the gain estimate is closer to the real taxable amount.
• Use the tax rate that matches the situation you are modeling, since different rates change the estimate.
• Treat the result as an estimate only, because a real 1031 exchange has additional IRS rules and deadlines.

Frequently asked questions