What qualifies as like-kind property in a 1031 exchange?

Under IRC Section 1031, "like-kind" for real property is very broad — virtually any US investment or business real estate qualifies as like-kind to any other US investment real estate. You can exchange a single-family rental for an apartment building, a commercial warehouse for a shopping center, or raw land for an office building. The key requirement is that both the relinquished and replacement properties must be held for investment or productive use in a trade or business — not personal residences or property held primarily for sale (i.e., flips). Primary residences do not qualify, though there are strategies combining Section 121 (primary residence exclusion) with a 1031 exchange.

What is the 45-day identification rule?

After you close on the sale of the relinquished property, you have exactly 45 calendar days to identify potential replacement properties in writing to your qualified intermediary. You can identify up to 3 properties of any value (the "3-property rule"), or any number of properties whose combined value does not exceed 200% of the relinquished property's value (the "200% rule"). The 45-day clock begins the day of closing and does not pause for weekends or holidays. Missing this deadline voids the entire exchange and the gain becomes fully taxable.

What is the 180-day closing rule?

You must close on the purchase of the replacement property within 180 calendar days of closing on the sale of the relinquished property, or by the due date of your tax return for the year of the sale (whichever is earlier). If your sale closes in October and your tax return is due April 15, you may have less than 180 days. Filing for an extension can preserve the full 180-day window. Like the 45-day deadline, there are no extensions except in federally declared disaster areas.

What is "boot" in a 1031 exchange?

Boot is any non-like-kind property or cash received in the exchange, and it is taxable. The most common form is cash boot — where you receive cash proceeds instead of reinvesting all of them (e.g., you pocket the down payment difference). Mortgage boot occurs when the debt on your replacement property is less than the debt on your relinquished property — the decrease in liability is treated as boot received. Receiving any personal property (furniture, equipment) as part of the transaction also creates boot. The goal of a clean 1031 exchange is zero boot: reinvest all proceeds and match or exceed the prior debt level.

What happens to depreciation recapture in a 1031 exchange?

Depreciation recapture is deferred along with capital gains in a 1031 exchange — it is not eliminated. The accumulated depreciation reduces your adjusted basis, creating a larger deferred gain that carries into the new property's basis. When you eventually sell the replacement property without doing another 1031, the IRS will collect the 25% depreciation recapture tax (unrecaptured Section 1250 gain) on all prior depreciation, including any carried over from the original property. Many investors do successive 1031 exchanges throughout their lifetime and then pass the property to heirs at a stepped-up basis, effectively eliminating the deferred tax permanently.

Can you 1031 exchange into multiple replacement properties?

Yes. You can use the exchange proceeds to buy more than one replacement property, as long as all identified properties are closed within the 180-day window and the total value of replacement properties equals or exceeds the amount realized from the relinquished property. This is commonly done when an investor sells a large property and wants to diversify into several smaller rentals, or shift from one asset class to another. Each replacement property acquisition does not reset the 180-day clock — the same deadline applies to all.

What is a qualified intermediary (QI) and do I need one?

A qualified intermediary (also called an exchange accommodator or facilitator) is a third party that holds the sale proceeds between the sale of the relinquished property and the purchase of the replacement property. Having a QI is mandatory for a deferred 1031 exchange — you cannot receive or control the sale proceeds yourself, even briefly, without disqualifying the exchange. The QI takes assignment of your purchase and sale contracts, receives the sale proceeds, and then releases them to purchase the replacement property. QI fees typically run $500–$1,500 for a basic exchange. You cannot use your attorney, CPA, real estate agent, or employee as your QI.

1031 Exchange Calculator

A 1031 exchange (named for IRC Section 1031) allows real estate investors to defer capital gains tax when selling investment property and reinvesting the proceeds into a like-kind replacement property. This calculator shows how much tax you can defer, whether you will trigger any taxable "boot," and what your new cost basis will be. Always consult a qualified intermediary and CPA before executing a 1031 exchange — the rules are strict and deadlines are unforgiving. Use the Real Estate Capital Gains Calculator to see the full tax picture if you sell without doing an exchange.

Sale Price

Gross sale price of relinquished property

Original Purchase Price

What you originally paid for the property

Depreciation Taken

Total depreciation claimed — reduces your basis

Selling Costs

Agent commissions, title, closing costs

Replacement Property Price

Must equal or exceed amount realized to avoid boot

This calculator shows the gain deferred and boot amount. Actual tax owed depends on your income level, depreciation recapture rate (25%), and long-term capital gains rate (0–20%). Consult a CPA and qualified intermediary before executing a 1031 exchange.

Tax Deferred

$270,000.00

Boot (Taxable Portion)

$0.00

Recognized Gain (Total)

$270,000.00

Adjusted Basis of Relinquished Property

$205,000.00

New Property Cost Basis

$380,000.00

How to use this calculator

1
Enter the sale price and original purchase price
The sale price is the gross amount you are selling the relinquished property for. The original purchase price is what you paid when you acquired it — not current value.
2
Enter depreciation taken
Total depreciation deductions you have claimed on this property since purchase. This reduces your adjusted cost basis and is subject to "depreciation recapture" at a 25% rate when you sell. Pull this from your prior tax returns (Form 4562 cumulative depreciation).
3
Enter selling costs
Agent commissions, title fees, closing costs, and other expenses of the sale. These reduce your amount realized (net sale proceeds) and therefore reduce the recognized gain.
4
Enter the replacement property price
The purchase price of the new property you are acquiring. To fully defer all gains, you must reinvest all net proceeds (amount realized) into the replacement property. If your replacement property costs less, the shortfall is "boot" — taxable.
5
Review tax deferred, boot, and new basis
The calculator shows total recognized gain, how much is deferred in the exchange, any boot (taxable portion), and the new adjusted cost basis of the replacement property. Consult a CPA for actual tax liability since rates depend on your income and the mix of depreciation recapture vs long-term capital gain.

Formula

Adjusted Basis       = Original Purchase Price − Depreciation Taken
Amount Realized      = Sale Price − Selling Costs
Recognized Gain      = Amount Realized − Adjusted Basis
Boot                 = MAX(0, Amount Realized − Replacement Property Price)
  [Boot = uninvested proceeds; the portion you did NOT reinvest]
Tax Deferred         = Recognized Gain − Boot
New Cost Basis       = Replacement Property Price − Tax Deferred
  [Carries forward the deferred gain into the new property's basis]

Adjusted basis is the original cost minus accumulated depreciation — this is the IRS's measure of your "investment" in the property. Amount realized is your net sale proceeds after selling costs. Recognized gain is the economic profit you made. In a 1031 exchange, gains are deferred — not eliminated — as long as you reinvest all proceeds into a replacement property of equal or greater value. Boot is the taxable shortfall: if you reinvest only $400,000 of $475,000 in proceeds, the $75,000 difference is boot and is taxable in the year of exchange. The new basis carries the deferred gain forward so it is eventually taxed when the replacement property is sold (unless you do another 1031). Example: sale price $500,000, purchase price $250,000, depreciation $45,000, selling costs $25,000. Adjusted basis = $205,000. Amount realized = $475,000. Recognized gain = $270,000. If replacement property costs $650,000, boot = $0, tax deferred = $270,000. New basis = $650,000 − $270,000 = $380,000.

Worked Example

Sale Price: $500,000 Original Purchase Price: $250,000 Depreciation Taken: $45,000 Selling Costs: $25,000 Replacement Property: $650,000 Adjusted Basis: $250,000 − $45,000 = $205,000 Amount Realized: $500,000 − $25,000 = $475,000 Recognized Gain: $475,000 − $205,000 = $270,000 Boot: MAX(0, $475,000 − $650,000) = $0 (Replacement costs more than proceeds — no boot) Tax Deferred: $270,000 − $0 = $270,000 New Cost Basis: $650,000 − $270,000 = $380,000 Note: The $270,000 deferred gain includes $45,000 of depreciation recapture (taxed at 25%) and $225,000 of long-term capital gain (taxed at 0%, 15%, or 20% depending on income). Consult a CPA.

Frequently Asked Questions

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