1031 Exchange Calculator
A 1031 tax-deferred exchange involves the sale of an investment property in exchange for a like-kind replacement property (or properties) to defer capital gains tax. In general, any real property can be exchanged provided it is held for “investment” or for the “productive use in a trade or business”. To complete an exchange, the relinquished property must be exchanged for property of “like-kind” that will also be “held for” one of those purposes.
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Investment Real Estate Sold: |
Investment Real Estate Purchased: |
Recognized Gain and Basis |
Definitions
Date of sale
Date the investment real estate will be sold.
Date of purchase
Date the purchase of the replacement property(ies) will take place. Exchange must be completed within 180 days from date of sale and meet all other exchange requirements to qualify for tax deferral.
Description of Property
Optional brief description of the property involved in this exchange.
Adjusted Cost Basis
The adjusted basis of investment real estate being sold. Your tax professional can help you calculate this value based on improvements made and allowable deductions taken during your ownership period.
Sales price
The contracted sales price of the investment property sold.
Sales cost, commissions and exchange fee
Expenses associated with the sale that are the responsibility of the seller. May include commissions, title insurance, closing costs, exchange fee, etc. This should not include items paid at closing that are not subtracted from the basis of the property. Generally this would include items that would be expensed such as interest, escrow and insurance payments.
Net Sale for Property Sold
The contracted sales price minus sales costs, commissions and exchange fee.
Net Cash Received
Net sale minus liabilities or mortgages on the investment real estate sold. This amount goes into the exchange account and, to avoid any tax, must all be reinvested into the investment real estate purchased.
Purchase price
The contracted purchase price of the replacement investment real estate.
Purchase cost and commissions
Expenses associated with the purchase that are the responsibility of the buyer. May include commissions, title insurance, closing costs, etc. This should not include items paid at closing that not added to the basis of the property. Generally this would include items that would be expensed such as prepaid interest, escrow and insurance payments.
Net Cost for Property Purchased
The contracted sales price minus sales costs, commissions and exchange fee.
Net Cash Reinvested
Net sale minus liabilities or mortgages on the investment real estate purchased in the exchange. To avoid any tax, this amount must be greater than than the net cash generated by the property being sold.
Less Liabilities/Mortgages
Any liabilities or mortgages on the property.
Recognized Gain
The taxable amount of the transaction. If there is no 1031 exchange, it is the difference between the net sales price and the adjusted cost basis. If a 1031 exchange is performed, it is any amount purchased less than the net sale OR any amount of cash taken from the net proceeds (often referred to as "boot").
Basis of Property Sold
This is the original adjusted basis plus any amount purchased greater than the net sale.
This calculator is provided as general information only and should not be taken as legal, investment or other professional advice. This content of this website and this calculator shall not be construed as a recommendation to participate in any particular trading, financial or investment strategy, and neither Leader Bank, NA nor Leader1031.com, LLC can provide legal or tax advice concerning the specific tax consequences of a given transaction. Any action that you take as a result of information or opinions provided in this website and calculator is ultimately your responsibility. Consult your attorney or tax professional before making any investment or financial decisions.
What is a 1031 Exchange?
A 1031 Exchange, also known as a Starker Exchange, provides real estate investors the ability to defer capital gains tax on investment property transactions by selling an investment property and using the proceeds from the sale for the purchase of like-kind replacement property. Starker refers to the Taxpayer who successfully challenged the IRS to allow what are known today as deferred exchanges.
What is Like-Kind Property in a Section 1031 Exchange?
To be eligible for a 1031 exchange, the exchange of property must involve real property held for business use or investment purposes. These exchanges cannot be used for primary or second homes. Whereas all “real property” may qualify, the term like-kind refers to how the real estate asset must be used or held for business use or investment purposes. For example, industrial property can be exchanged for a single-family rental property, or retail property can be exchanged for a multi-family residential rental property.
What is Disqualified as Like-Kind Property in an Exchange?
Simply put, disqualified property is property that is NOT an investment property including, but not limited to; a primary residence, a second home, properties being flipped, or a property held in inventory for sale. In addition, recent changes to tax law disallow personal property (artwork, boats, etc.) as valid property in a 1031 exchange at the federal level.
How Long Must a Replacement Property Be Owned to Qualify for a 1031 Exchange?
Section 1031 of the tax code does not clearly define a minimum amount of time for which taxpayers must hold the investment property once an exchange is complete. However, when the IRS examines exchange transactions, it is often recommended that the taxpayer be able to provide evidence indicating the relinquished property was held for investment for a minimum of one year and one day.
What is Boot in a 1031 Exchange?
Boot refers to any non-like-kind property received in an exchange. One reason boot comes into play is because it can be difficult to find a replacement property (or properties) that is the same, or higher value of the property being relinquished. When this occurs, there may be proceeds from the sale that are received by the seller and not applied towards the purchase of the replacement property. These proceeds are taxable boot, not part of the exchange, and so subject to capital gains taxes from the sale.
