Real Estate Planning Tool

1031 Exchange Planner

Estimate replacement-property targets, depreciation recapture exposure, taxable boot risk, and key 1031 exchange deadlines before speaking with your CPA, attorney, lender, or qualified intermediary.

This tool helps answer:

  • What tax exposure might I need to discuss with my CPA?
  • What tax might be deferred if an exchange is properly structured?
  • How much replacement property value should I be targeting?
  • Do I need to replace debt, add cash, or both?
  • What cash or mortgage boot issue should I ask about?
  • What are my 45-day and 180-day deadlines?

Choose what you want to review

This planning tool is designed to help users organize the main numbers before speaking with their qualified intermediary, CPA, attorney, broker, or lender. It is not intended to make tax or legal conclusions.

Suggested workflow: Start with Sale vs. Exchange to estimate possible tax exposure and deferral. Then move to Reinvestment Target to estimate replacement-property and debt targets. Finally, review Boot Exposure to identify possible taxable cash or debt-reduction issues.
Example assumptions: Example assumptions are preloaded to demonstrate the planner workflow. Replace with your own transaction details for planning estimates.

Step 1: Sale vs. Exchange

Estimate realized gain, depreciation recapture exposure, capital gain exposure, and the approximate tax that may be deferred through an exchange.

Optional. Used only in copy/share summary.
Gross contract sale price.
Brokerage, closing costs, transfer costs, and similar sale-side expenses.
Debt paid off or relieved at the relinquished property sale.
This is the expected closing date for the property being sold. The 45-day and 180-day exchange timelines generally begin on this date.
Use the original acquisition price before later improvements.
Major improvements added to basis; ask your CPA if unsure.
A key input. Depreciation may create recapture exposure if the property is sold.
Original purchase price + capital improvements − depreciation taken.
Often discussed as a federal rate up to 25%. Use your advisor's rate.
Use 0 for states with no applicable state income tax. State treatment of capital gain and depreciation recapture varies by jurisdiction.
Optional planning estimate; may not apply to every taxpayer.
Tax assumption note: This planner uses simplified planning assumptions. The state tax rate entered is applied to total realized gain as a planning simplification. State tax treatment can vary significantly, including how a state treats depreciation recapture and capital gain. Confirm the proper rates and treatment with a CPA.
Cash retained by the exchanger may create cash boot.
Additional cash may help offset reduced debt or acquisition costs.
Planning estimate for QI fees, legal/accounting, lender costs, title, due diligence, and acquisition expenses.
Planning note: Investors often incur intermediary, financing, legal, accounting, title, and acquisition costs during a 1031 exchange. This section is intended for planning estimates only and does not determine the tax treatment of specific expenses.

1031 Exchange Basics

A 1031 exchange involves timing rules, replacement-property planning, financing considerations, ownership structure questions, and coordination between several professionals. The purpose of this section is to explain the major concepts in plain English before you begin an exchange.

What is a 1031 exchange?

A 1031 exchange allows many real estate investors to defer gain from the sale of qualifying investment or business real estate when they reinvest into other qualifying real estate. The tax is generally deferred, not erased. The replacement property usually carries forward the tax history of the relinquished property, which is why basis and depreciation matter.

Plain English warning: A 1031 exchange is not simply “selling one property and buying another.” The transaction has to be structured correctly before closing, and the seller generally should not receive or control the sale proceeds.

Who needs to be involved?

Many investors first hear about qualified intermediaries only after a property goes under contract, even though exchange structure and timing usually need to be addressed before closing. Below are the professionals commonly involved in a 1031 exchange.

Investor / Exchanger

The taxpayer selling the old property and acquiring replacement property. The same taxpayer generally needs to stay consistent through the exchange.

Qualified Intermediary

The QI helps structure the exchange, holds exchange funds, prepares exchange documents, and helps prevent the exchanger from taking control of proceeds.

CPA / Tax Advisor

Calculates gain, basis, depreciation recapture, state tax exposure, and whether the exchange makes sense after tax consequences are considered.

Real Estate Broker

Helps locate replacement property, analyze values, manage timing pressure, negotiate terms, and keep the acquisition search moving.

Attorney

Important when ownership structure, entities, partnership issues, title, drop-and-swap planning, or legal risk are involved.

Lender

Needed when replacement debt must be arranged quickly. Financing delays can create exchange failure risk even when the property is identified on time.

What is boot?

In a 1031 exchange, “boot” generally refers to value received by the exchanger that is not like-kind replacement real estate. Boot may cause part of an otherwise tax-deferred exchange to become taxable.

Two common planning concerns are cash boot and mortgage boot. Cash boot may occur when the exchanger keeps some sale proceeds instead of reinvesting them. Mortgage boot may occur when debt is reduced and not offset with new debt or additional cash. The actual tax treatment is fact-specific and should be reviewed with a qualified intermediary and tax advisor.

Practical takeaway: Boot does not necessarily mean the entire exchange fails. It may mean part of the transaction is taxable. That is why this planner flags potential boot exposure rather than making a final tax conclusion.

Understanding depreciation recapture

Many investors focus only on capital gains tax, but depreciation can also matter. If a property has been depreciated, some of the gain may be subject to depreciation recapture rules when the property is sold. This can make the estimated tax exposure larger than a simple “sale price minus purchase price” calculation suggests.

This planner separates estimated depreciation recapture exposure from remaining capital gain exposure so users can see why their CPA’s tax estimate may differ from a simple capital-gains-only calculation.

The three planning rules most investors need to understand

1. Buy equal or greater value

To aim for full deferral, the replacement property value generally needs to be equal to or greater than the relinquished property value, subject to transaction-specific details.

2. Reinvest net proceeds

Cash retained outside the exchange may create taxable cash boot.

3. Replace debt or add cash

If debt is reduced, the exchanger may need to add cash to avoid mortgage boot or partial taxable gain.

Key timeline

Day 0

Relinquished property closes

The clock starts when the old property sale closes.

Day 45

Identification deadline

Replacement property must generally be identified in writing by this deadline.

Day 180

Acquisition deadline

The replacement property must generally be acquired within the exchange period.

Replacement property identification rules

Replacement property does not necessarily have to be one property. Some exchanges involve multiple replacement properties, but identification rules and timing requirements can become important very quickly.

Three-property rule

An exchanger may commonly identify up to three potential replacement properties, regardless of their total value. This is often the simplest framework to understand.

200% rule

More than three properties may sometimes be identified if the combined value of the identified properties does not exceed 200% of the relinquished property value.

95% exception

In some situations, broader identification may still work if the exchanger ultimately acquires at least 95% of the identified value. This is less common and should be reviewed carefully.

Planning note: Identification rules are technical. This page is intended to raise awareness, not determine whether an identification strategy is valid.

Other exchange structures investors may encounter

Delayed exchange

The most common structure: sell first, identify replacement property, then buy within the required timeline.

Reverse exchange

Replacement property is acquired before the old property sells. This is more complex and typically more expensive.

Improvement / build-to-suit exchange

Exchange funds may be used toward improvements under strict structure and timing rules.

DST or TIC interests

Some investors use fractional real estate structures as replacement options, especially when they want passive ownership.

Drop and swap

Advanced ownership restructuring sometimes considered before an exchange. Highly fact-specific; attorney and CPA guidance required.

Swap and drop

Advanced post-exchange restructuring concept. Should be mentioned carefully, not presented as a simple workaround.

When a 1031 exchange may not be worth it

A 1031 exchange can preserve capital, but it is not always the best decision. It may be less attractive when the gain is small, the replacement property choices are weak, the investor is likely to overpay under deadline pressure, ownership structure is complicated, or the investor needs liquidity more than tax deferral.

The planner should help users see the estimated tax deferral, but the page should also remind them that a bad replacement purchase is not made good simply because taxes were deferred.

Disclaimer: This planner is for educational planning only. It does not provide tax, legal, accounting, exchange, lending, or real estate advice. 1031 exchange rules are technical and fact-specific. Always consult a qualified intermediary, CPA, attorney, and other appropriate professionals before relying on exchange calculations or structuring a transaction.