1031 Exchange Calculator
Key Terms
Net Sales Proceeds
The amount the seller of the property receives after all selling expenses, including real estate commissions, closing costs, legal fees, and outstanding loans.
Capital Improvement
Any permanent addition or alteration to real property that has been capitalized for tax purposes and substantially adds value or prolongs the useful life of the real property.
Original Tax Basis
The total capital an owner has invested and capitalized in the asset, including the purchase price, closing costs, and capitalized improvements.
Accumulated Depreciation
The total depreciation for an investment property that has been charged or was available to use as depreciation expense during the time the property was owned.
Capital Gains
The profits made from selling an investment property calculated by subtracting original tax basis from net sales proceeds
Federal Capital Gains Tax
IRS tax applied on the long-term capital gains of an investment property when the property is sold. The long-term capital gains tax rates are 0%, 15%, and 20%, depending on your income including the gain resulting from the sale.
State Capital Gains Tax
State tax applied on long-term capital gains of an investment property and depreciation recapture when the property is sold. The state capital gains tax rates range from 0% to 13.3%, depending on your income and the state the property is located.
Depreciation Recapture Tax
Federal tax assessed on the portion of the capital gain attributable to the depreciation deductions previously allowed during the period the taxpayer owned the property. The Federal depreciation recapture rate on this portion of the gain is 25%.
Net Investment Income Tax
IRS surtax applied to the portion of modified adjusted gross income (MAGI) above predetermined thresholds. If applicable, the net investment income tax (NII) is 3.8%, depending upon your income.
Cash Flow Rate
Annual rate of return on a real estate investment calculated by dividing annual income from property by total equity investment in property
How to Use the 1031 Exchange Calculator
Calculate capital gains tax & total tax liability
Investment property owners can pay as much as 42.1% in taxes related to the sale of their property. This tax liability is comprised of Federal Capital Gains Tax (0%, 15%, 20%), State Capital Gains Tax (0% to13.3%), Depreciation Recapture Tax (25%), and Net Investment Income Tax (0% or 3.8%). The aggregate amount of these calculations represents the maximum taxes owed and can be deferred with a 1031 Exchange. Note that when considering a property that was acquired via a 1031 Exchange, all deferred gain must be included within the inputs for an estimate of the total tax liability.
Compare net sales proceeds available for reinvestment
The taxes deferred on the relinquished property (investment property sold) allow for greater net sales proceeds to be reinvested. Use the 1031 Exchange Calculator to estimate net sales available for reinvestment with and without a 1031 Exchange.
About The 1031 Exchange Calculator
The 1031 Exchange Calculator above provides a simple estimation of potential taxes related to the sale of investment property and net sales proceeds available for reinvestment. These calculations are estimates for the purpose of demonstration. Many factors are involved in calculating taxes, including factors unique to each taxpayer. As actual results may vary, please consult your tax and legal advisors for a thorough tax calculation.
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