Companion to: Real Estate Decoded Chapter 11 (1031 Exchange) - Workbook tab (Tax Strategy Decoded workbook)
Inputs
Outputs
Net sale proceeds
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Realized gain
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Deferred gain (full 1031)
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Mortgage boot (if any)
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Total boot recognized
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Tax on recognized boot
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Tax deferred via exchange
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New property carryover basis
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How to read this tool: Section 1031 defers (NOT eliminates) capital-gains tax when real estate is exchanged for like-kind real estate. The 45-day identification window and 180-day close window are statutory. Boot (cash or mortgage relief) is recognized as taxable gain to the extent of realized gain. New-property basis = replacement cost MINUS deferred gain - so the gain comes back at the next sale unless deferred again.
What this tool is for
1031 exchange is the single most-used tax-deferral tool in US real estate. The discipline: replacement property identified within 45 days, closed within 180 days, equal-or-greater-value, equal-or-greater-debt, no boot. Practitioners like Sam Zell built fortunes on serial 1031 chains compounding tax-deferred. This tool gives you the boot exposure and tax-deferral math.
Benchmarks the practitioner watches
- Federal capital gains rate: 20% top bracket + 3.8% NIIT = 23.8% effective
- Plus state: 0% (FL, TX, NV) to 13.3% (CA top bracket)
- Identification: 3-property rule, 200% rule, 95% rule (pick one)
- Standard QI (qualified intermediary) fee: $750-1,500
- Reverse exchanges and improvement exchanges available for complex situations
Common mistakes
- Receiving boot when the replacement property is smaller than the relinquished (mortgage boot)
- Missing the 45-day identification window (no extensions, statutory)
- Identifying replacement property without sufficient due diligence
- Treating 1031 as elimination instead of deferral - the deferred gain compounds at the next sale
Educational reference only. Not investment, tax, legal, or real-estate advice. Confirm market-specific cap rates, lender terms, and tax overlay with your own advisors before acting.