1031 Exchange Tax Calculator - Like-Kind Exchange Tax Deferral

Original Property:
Purchase Price: $500,000
Accumulated Depreciation: $100,000
Adjusted Basis: $400,000

Sale Details:
Sale Price: $800,000
Gross Gain: $400,000
Depreciation Recapture: $100,000
Capital Gain: $300,000

Tax Calculation:
Recapture Tax (25%): $25,000
Capital Gains Tax (20%): $60,000
Net Investment Income Tax (3.8%): $15,200
Total Tax: $100,200

Net Proceeds: $699,800

Sale Price: $800,000
Exchange Expenses: $15,000
Net Proceeds Available: $785,000

Tax Deferral:
Capital Gains Tax Deferred: $60,000
Recapture Tax Deferred: $25,000
NIIT Deferred: $15,200
Total Tax Deferred: $100,200

Available for Reinvestment: $785,000
Additional Investment Power: $100,200

Relinquished Property Sale: January 15, 2025
45-Day Deadline: March 1, 2025 (11:59 PM)
180-Day Deadline: July 14, 2025

Planning Considerations:
- Tax return due: April 15, 2025 (with extension: October 15, 2025)
- Exchange must complete by July 14, 2025
- No extensions available for exchange deadlines

Relinquished Property Value: $1,000,000
Minimum Replacement Property Value: $1,000,000

Acceptable Scenarios:
- Purchase $1,200,000 property (complete deferral)
- Purchase $1,000,000 property (complete deferral)

Problematic Scenario:
- Purchase $900,000 property (partial deferral, $100,000 taxable)

Relinquished Property: $800,000
Replacement Property: $750,000
Cash Boot Received: $50,000

Tax Consequence:
Taxable Gain: Lesser of $50,000 or Total Realized Gain
If total gain = $200,000, taxable gain = $50,000
Tax Due: $50,000 × applicable tax rates
Deferred Gain: $150,000

Relinquished Property:
Sale Price: $1,000,000
Existing Mortgage: $400,000
Net Equity: $600,000

Replacement Property:
Purchase Price: $1,200,000
New Mortgage: $500,000
Cash Required: $700,000

Mortgage Analysis:
Debt Relief: $400,000
New Debt: $500,000
Net Debt Increase: $100,000
No mortgage boot (debt increased)

Property A: $500,000
Property B: $300,000
Property C: $200,000
Total Relinquished: $1,000,000

Replacement Strategy:
Single Property: $1,100,000
Complete deferral achieved
Portfolio consolidation accomplished

Relinquished Property: $1,500,000

Replacement Properties:
Property 1: $800,000
Property 2: $400,000
Property 3: $350,000
Total Replacement: $1,550,000

Result: Complete deferral with diversification

Relinquished Property Sale: $2,000,000
Land Purchase: $500,000
Construction Budget: $1,200,000
Total Investment: $1,700,000

Requirements:
- Construction must complete within 180 days
- Qualified Intermediary holds funds
- Exchanger cannot control construction
- Must receive completed property

Risk: Construction delays jeopardize exchange

Timeline:
Day 1: Acquire replacement property through EAT
Day 45: Market relinquished property
Day 120: Close sale of relinquished property
Day 180: Complete exchange

Benefits:
- Secure desirable replacement property
- Control timing and market conditions
- Avoid 45-day identification pressure

Costs:
- Financing carrying costs
- EAT fees and expenses
- Market risk on relinquished property

Typical Exchange:
Relinquished: 3 single-family rentals
Total Value: $900,000
Management Intensity: High

Replacement: 12-unit apartment building
Value: $1,000,000
Management Efficiency: Improved

Benefits:
- Reduced management complexity
- Improved cash flow per dollar invested
- Professional property management options

Relinquished: Office building
Value: $3,000,000
Cap Rate: 6%
Net Income: $180,000

Replacement: Retail center
Value: $3,200,000
Cap Rate: 7%
Net Income: $224,000

Analysis:
- Increased cash flow: $44,000 annually
- Different risk profile
- Market diversification
- Complete tax deferral

Current: Improved rental property
Value: $1,500,000
Annual Income: $120,000
Management Required: Significant

Exchange to: Raw land in growth path
Value: $1,600,000
Annual Income: $0
Management: Minimal

Strategy:
- Long-term appreciation play
- Reduced management burden
- Future development potential
- Tax deferral preservation

Relinquished: 5 properties in City A
Total Value: $2,500,000
Market Concentration: 100%

Replacement Strategy:
City B: $1,000,000 (40%)
City C: $800,000 (32%)
City D: $700,000 (28%)
Total: $2,500,000

Benefits:
- Geographic diversification
- Market risk reduction
- Economic cycle protection
- Growth opportunity expansion

Current Location: California
State Tax Rate: 13.3%
Property Value: $2,000,000

Exchange Location: Texas
State Tax Rate: 0%
Property Value: $2,100,000

Long-term Benefits:
- No state capital gains tax on future sale
- No state income tax on rental income
- Estate tax advantages
- Business-friendly environment

Typical Fee Structure:
Exchange Fee: $1,000-$3,000
Accommodation Fee: $500-$1,500
Document Preparation: $500-$1,000
Wire Fees: $25-$50 per wire

Selection Criteria:
- Experience and track record
- Financial stability and bonding
- Technology platform capabilities
- Customer service and support

Failure Rate Analysis:
45-Day Identification: 15% failure rate
180-Day Completion: 25% failure rate
Combined Success Rate: ~65%

Mitigation Strategies:
- Early property identification
- Multiple property backup options
- Pre-qualified financing
- Experienced professional team

Common Issues:
- Loan approval delays
- Appraisal problems
- Title issues
- Environmental concerns

Solutions:
- Pre-approved financing
- Multiple lender relationships
- Early due diligence
- Contingency planning

Available Coverage:
- QI default insurance
- Exchange completion insurance
- Title insurance
- Environmental insurance

Cost-Benefit Analysis:
Insurance Cost: $2,000-$5,000
Protected Value: $1,000,000+
Risk Mitigation: Significant

Tax Savings: $100,000-$500,000+
Professional Fees:
- QI Fees: $2,000-$5,000
- Legal Fees: $3,000-$10,000
- CPA Fees: $2,000-$5,000
- Broker Commissions: $30,000-$60,000
Total Costs: $37,000-$80,000

Net Benefit: $20,000-$420,000+
ROI: 50%-500%+

Exchange History:
Original Basis: $200,000
Current FMV: $2,000,000
Deferred Gain: $1,800,000

At Death:
Heir's Basis: $2,000,000 (stepped-up)
Deferred Taxes: Eliminated permanently
Estate Value: Preserved

Wealth Transfer: $1,800,000 in tax savings

10-Year Strategy:
Year 0: Start with $500,000 property
Year 3: Exchange to $750,000 property
Year 6: Exchange to $1,200,000 property
Year 10: Portfolio value $2,000,000+

Without Exchanges:
Tax drag reduces portfolio to $1,400,000
Exchange Advantage: $600,000+ additional wealth