Estimate deferred gain, taxable boot, and new basis on a like-kind real estate exchange. Built for operators trading up to larger multifamily or repositioning the portfolio.
Total depreciation taken since acquisition.
Full purchase price of the new property.
Mortgage on the new property. Equal or greater debt avoids mortgage boot.
Named after IRC Section 1031, a like-kind exchange lets you defer capital gains tax when you sell investment real estate, as long as you reinvest the proceeds into another investment property under strict timelines.
The tax isn't eliminated — it's deferred into the replacement property's basis. Operators who chain exchanges across a lifetime never pay the deferred gain; at death, heirs receive a stepped-up basis and the gain disappears entirely.
Proceeds go directly to your qualified intermediary (QI) — never to you. Any constructive receipt kills the exchange.
Identify replacement properties in writing. Up to 3 properties (any value), or unlimited if combined value < 200% of relinquished.
Close on one of the identified replacement properties. Includes the original 45 days. No extensions, no exceptions.
The replacement must be held for investment or business use. Don't convert to a primary residence inside 2 years or you risk recharacterization.
Boot is the portion of the exchange that doesn't qualify for tax deferral. Two types:
Equity from the sale that doesn't get reinvested. If you take any cash out at closing, that amount is taxable.
When the replacement property has less debt than the relinquished property. The debt reduction is treated as boot.
To fully defer the gain, two conditions: (1) reinvest 100% of net sale proceeds, AND (2) take on equal or greater debt on the replacement. Miss either and a portion of your gain becomes recognized (taxable) this year.
The single most common 1031 failure mode. Operators get distracted, deals fall through, and the 45-day clock runs out without a valid written identification. Identify backup properties — you're allowed up to 3, or unlimited if combined value is under 200% of what you sold. Use the safety of multiple identifications.
If you have any ability to access the sale proceeds during the exchange period — even a wire to your bank account that you don't spend — you're considered to have "constructively received" the money. Exchange dies. The qualified intermediary must hold and disburse. Never touch the funds.
You sold a property with a $300k mortgage and bought one with a $200k mortgage. The $100k debt reduction is taxable boot, even though you reinvested 100% of cash. The fix: either take on equal or greater debt, or add cash to bring the replacement's debt up.
Properties held primarily for sale ("inventory" in IRS-speak) don't qualify. If you bought, renovated, and sold within 12 months — the IRS will likely treat it as a flip, not investment. Hold periods of 2+ years are the safe zone; under that and you're arguing intent.
Qualified intermediaries hold your sale proceeds for up to 180 days. Pick one with strong financial backing, bonding, segregated escrow accounts at major banks, and a long track record. Multiple high-profile QI failures (Land America, 1031 Tax Group) have wiped out client exchanges.