1031 Exchange Calculator: Defer Capital Gains on Investment Real Estate in 2026
The most important tool in the real-estate-investor playbook — but the timing rules are unforgiving and disqualified exchanges are taxable in full.
Internal Revenue Code Section 1031 lets real-estate investors defer capital gains and depreciation recapture taxes when they sell investment property and reinvest the proceeds into like-kind investment property within strict timelines.
Post-TCJA (2018), §1031 applies only to real estate; personal property exchanges (planes, equipment, art) no longer qualify. The mechanics are simple in concept but the 45-day and 180-day deadlines are absolute, and a single mishandled step can disqualify the entire exchange. This guide walks through the rules, the calculator estimates the tax deferred, and the FAQs cover the edge cases.
1031 exchange essentials in 2026
Interactive calculator
Estimates only. Consult a licensed CPA or fee-only fiduciary for advice specific to your situation.
1031 exchange defers (not eliminates) tax. Strict timing rules: 45 days to identify replacement, 180 days to close. Use a Qualified Intermediary — proceeds cannot pass through your hands. Like-kind = real-estate-for-real-estate (post-TCJA).
The 45-day identification rule in detail
From the closing date of your relinquished property, you have exactly 45 calendar days (not business days, no extensions for weekends/holidays) to identify potential replacement properties IN WRITING to your Qualified Intermediary.
Three identification options: (1) Three-property rule — identify up to 3 properties of any value. (2) 200% rule — identify any number of properties whose combined value doesn't exceed 200% of the relinquished property. (3) 95% rule — identify any number, no value limit, but must close on properties worth at least 95% of total identified value.
Most investors use the three-property rule. It's the simplest and lets you identify your top choice plus two backups.
Death wipes out 1031 deferred gain
Section 1031 defers gain — it doesn't eliminate it. Sell a relinquished property gain, exchange into a new one, then later sell that new property: the original deferred gain is now taxable.
EXCEPT: if you hold the replacement property until death, your heirs receive a stepped-up basis under §1014. The deferred gain is wiped out entirely. This is the foundation of the 'swap till you drop' strategy popular with multi-property investors approaching retirement age.
Combined with §1031's flexibility on what counts as like-kind, this creates a powerful long-term wealth-transfer pattern: serial 1031 exchanges through working life, then bequeath at death with full step-up. Estate-tax planning for substantial estates is a separate consideration.
Real-world scenarios
Marcus sells a Phoenix duplex for $800K. Original basis: $300K. Depreciation taken: $120K. He identifies a $1.2M Houston multi-family within 45 days and closes within 180 days using a Qualified Intermediary.
Without 1031: $30K depreciation recapture (25%) + $57K LTCG (15% on remaining gain) + $14.4K NIIT (3.8%) + state tax (AZ ~$25K) = ~$126K total tax due. With 1031 properly executed: $0 tax now; $126K of tax deferred. Basis carries to the Houston property.
Sarah sells a $2M apartment building. Within 45 days she identifies 5 replacement properties with combined value $3.5M. She intends to acquire 3 of them.
200% rule: combined identified value ($3.5M) is below 200% of relinquished ($4M cap). Identification is valid. Sarah has 180 days to close on her chosen 3 properties. If she only ends up purchasing properties worth $1.6M (less than her $2M sale proceeds), the $400K cash difference is 'boot' and taxable.
Priya sells her duplex on January 15. She doesn't identify replacement properties until March 5 (49 days later).
Exchange fails. Entire gain becomes taxable in the year of sale. Approximately $150K federal + state tax bill that could have been deferred. The 45-day rule is absolute — there are essentially no exceptions. Use a calendar reminder; engage a real-estate attorney to track the timeline.
Tools and providers
Frequently asked
A QI (also called Accommodator or Exchange Facilitator) holds the sale proceeds between the relinquished-property closing and the replacement-property closing. The QI must be hired BEFORE the relinquished property closes; you cannot retroactively engage one. Sale proceeds going to your own account disqualifies the exchange. Cost: $750–$2,500 per exchange typically.
No. §1031 is for investment or business-use property. Primary residences fall under §121 (the $250K/$500K capital-gains exclusion), not §1031. You can convert a primary residence to a rental for at least 2 years, then 1031 it as investment property — but the rules around recharacterization are technical.
Within real estate, like-kind is interpreted very broadly. You can exchange a single-family rental for a commercial office, a duplex for a vacation rental, or raw land for an apartment building. As long as both properties are held for investment or productive use in a trade or business, the like-kind test is generally satisfied.
Boot is non-like-kind property received in the exchange — typically cash or debt relief. Boot is taxable up to the amount of gain. If Marcus sells for $800K and only buys $700K replacement, the $100K excess cash is boot and taxable. Boot can also be created through debt-relief: if your relinquished property had $300K mortgage and replacement only $200K, the $100K debt reduction is boot.
Yes. DSTs are popular for investors who want fractional ownership in institutional-quality real estate without active management. DST interests qualify as like-kind real estate. Common with retiring landlords looking to deploy proceeds without managing tenants.
Forward (standard): sell relinquished property first, identify within 45 days, close on replacement within 180. Reverse: buy replacement first, then sell relinquished within 180 days. Reverse exchanges are more expensive and complex (typically $5K-$15K) because the QI must hold title to one of the properties throughout.
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