1031 exchange vs. sell calculator

By Tom, CPA · Updated October 27, 2026

TL;DR: Selling a rental triggers tax on depreciation (unrecaptured Section 1250 gain, taxed at up to 25%), capital gains at 0%, 15% or 20%, possibly the 3.8% NIIT and state tax. A 1031 exchange into like-kind real estate defers all of it, so the full equity buys the next property. This calculator shows the tax bill if you sell, the cash left, and how much more equity a 1031 keeps working, minus intermediary costs.

Educational only, not tax, legal, or investment advice. Examples are illustrations, not predictions. Rules and limits change; verify current figures and talk to a qualified professional about your situation.

Selling a long-held rental is when the IRS sends the bill for all those years of depreciation deductions. A 1031 exchange lets you roll the gain into a new property and pay later, possibly much later, and if you hold until death, heirs generally get a basis stepped up to fair market value (Publication 551). Not bad for paperwork.

But exchanges cost money, limit your choices and lock you into real estate. This calculator shows the dollars on each side so you can decide whether the deferral is worth it. Rules as of October 2026. Basics: 1031 exchange basics.

CPA Warning Label: A 1031 defers tax; it does not erase it. The deferred gain carries into the new property's basis, and the deadlines (45 days to identify, 180 days to close) are strict with no extensions for ordinary delays.

How to use it

• Sale price and selling costs: commissions, title, transfer taxes.
• Adjusted basis: purchase price plus improvements, minus all depreciation. Your depreciation schedule (Form 4562 history) has it.
• Depreciation taken: including any you could have taken but didn't; the IRS taxes "allowed or allowable" depreciation.
• Rates: your capital gains rate, ordinary bracket (recapture is taxed at your bracket, capped at 25%), state rate, and whether NIIT applies (MAGI over $250,000 joint or $200,000 single, including the gain).
• Mortgage payoff and exchange costs: to compute the cash you'd actually walk away with.

Illustration

A rental bought years ago sells for $600,000 with $36,000 of selling costs. Adjusted basis is $300,000 after $100,000 of depreciation, and the mortgage payoff is $200,000.

• Gain: $264,000, of which $100,000 is unrecaptured Section 1250 gain.
• Recapture tax at 24%: $24,000. Capital gains tax at 15% on $164,000: $24,600. NIIT: $10,032. State at 5%: $13,200.
• Total tax: $71,832. Cash after selling: $292,168.
• With a 1031: $362,500 of equity goes into the next property after a $1,500 intermediary fee, $70,332 more working for you.

At a 6% annual return, that extra $70,332 could earn roughly $4,200 a year, before considering leverage. That's the real value of deferral.

1031 rules in brief

• Both properties must be real property held for investment or business use, not for sale (IRS like-kind exchange guidance).
• Use a qualified intermediary; touching the proceeds can kill the exchange.
• Identify replacement property within 45 days and close within 180 days. See the 1031 timeline checklist and identification rules.
• To defer fully, buy equal or greater value and reinvest all the cash. Cash or debt relief left over is "boot" and is taxable; see boot explained.
• Related-party exchanges have a two-year holding rule (Section 1031(f)).

Costs the headline number hides

• Carryover basis: the new property inherits the old low basis, so future depreciation on the replacement is smaller than it would be after a fresh purchase with taxed cash. Each year, that's a little less tax shelter.
• Forced timing: 45 days to identify property can push you into overpaying in a hot market. A bad purchase can cost more than the tax you deferred.
• Debt replacement: to avoid boot you generally must replace the debt paid off, with new debt or extra cash, so the exchange usually keeps you leveraged.
• Transaction costs: two sets of closing costs, plus intermediary fees and sometimes higher prices for exchange-friendly properties.
• Paperwork: report the exchange on Form 8824 and keep the intermediary agreement and identification letter.

None of this means skip the exchange. It means compare the after-tax equity number above with a realistic view of the next property.

When selling wins

• Your capital gains rate is 0%, for example in a low-income early-retirement year.
• You want out of real estate, or into a different asset class.
• You have suspended passive losses that will be released on a taxable sale.
• The gain is small, or you have losses to offset it.
• No good replacement property is available within 45 days.

The calculator leaves out these effects, plus state rules (some states track deferred gains when you exchange into out-of-state property). See more calculators.