A 1031 exchange lets real estate investors defer capital gains tax by selling one investment property and reinvesting the proceeds into a 'like-kind' replacement property.
A 1031 exchange lets real estate investors defer capital gains tax by selling one investment property and reinvesting the proceeds into a 'like-kind' replacement property. If you reinvest everything (and more), the gain is fully deferred; if you take cash out or buy something cheaper, that portion (called 'boot') becomes immediately taxable.
You sell a property for $400,000 (basis $250,000) and buy a replacement for $380,000. Realized Gain = $150,000. Boot = $400,000 − $380,000 = $20,000. Recognized Gain = min($20,000, $150,000) = $20,000 taxable now. Deferred Gain = $150,000 − $20,000 = $130,000 deferred.
A 1031 exchange (named after IRS Section 1031) lets a US real estate investor defer capital gains tax by reinvesting the proceeds from a sold property into a new "like-kind" property, instead of cashing out.
Any cash you keep out of the exchange (called "boot") is taxable in the year of the sale, even if the rest of the transaction qualifies for deferral.
No. It gives a quick estimate of deferred gain based on the numbers you enter. Always confirm the details with a qualified intermediary or tax professional, since 1031 rules have strict timelines and requirements.