Capital Gains Tax Deferral
Estimate the total tax a 1031 exchange could defer when you sell investment real estate — federal capital gains, depreciation recapture, the 3.8% NIIT, and state tax.
How this is calculated
Adjusted basis = original purchase price + capital improvements − accumulated depreciation. Total gain = sale price − adjusted basis. The portion attributable to depreciation is taxed as unrecaptured Section 1250 gain (up to 25%); the remainder is long-term capital gain taxed at your federal rate, plus any state tax and the 3.8% NIIT. A properly structured 1031 exchange defers all of it.
Notes & assumptions
- Assumes property held long-term (more than one year).
- Excludes selling costs, the qualified business income interplay, and any alternative minimum tax.
- Depreciation recapture is capped at a 25% federal rate for real property (unrecaptured Section 1250 gain).
Frequently asked questions
What tax does a 1031 exchange defer?
It defers the federal capital-gains tax, depreciation recapture, the 3.8% net investment income tax where it applies, and state tax on the gain — provided you reinvest the proceeds and replace the debt.
Is the tax eliminated or just delayed?
Delayed. The gain carries into your replacement property's basis. You can keep exchanging to keep deferring; at death heirs generally receive a stepped-up basis.
What federal rate should I enter?
Long-term capital gains are federally taxed at 0%, 15%, or 20% depending on income; 20% is the top rate. Enter the rate that matches your bracket, or ask your CPA.
Gerald F. “Jerry” Baker, III — Founder & Managing Principal, Baker 1031 Investments · FINRA Series 22 / 63 · SIE. Read full bio →
This calculator is for educational estimation only and is not tax, legal, or investment advice. Results are approximate and depend on assumptions that may not fit your situation; confirm any figures with your own CPA and attorney before acting. Securities are offered through Aurora Securities, member FINRA/SIPC. Real estate investments involve risk, including possible loss of principal.