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1031 Replacement Calculator

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How Much Property Should You Buy?

When considering a replacement property for a 1031 exchange, knowing exactly how much property value to acquire is important in order to successfully defer capital gains taxes and depreciation recapture from the sale of a property. This calculator will help you determine your ideal net purchase price, cash down payment, and how much new debt you should bring on.

The above calculation is an estimate. It’s important to consult with a licensed tax professional regarding your personal replacement property requirements.

1031 Exchange Replacement Property Rules

You can only use certain types of properties in a 1031 exchange. 1031 exchange property requirements include the following provisions.

“Like-Kind” Standard

In a 1031 exchange, the relinquished and replacement properties must be “like-kind,” meaning they have a similar nature or character. However, they don’t need to be in the same class or of the same quality.

Productive Use Rule

Only properties used for business or investment purposes are eligible for a 1031 exchange. Personal properties, like a primary residence, and properties held for sales purposes, like a flipped property, do not qualify for a 1031 exchange.

Property Value Requirement

In a 1031 exchange, the replacement property must have an equal or greater value than the relinquished property. If the replacement property’s value is less than the relinquished property, the investor is taxed on the difference, known as the boot.

1031 Exchange Replacement Property Examples

You can approach your 1031 exchange property calculations in several ways.

1. Increase Your Down Payment

Let’s say you sell a property for $500,000 on which you had a $300,000 mortgage at the time of the sale. Now you want to purchase a new property for $700,000. You can use $200,00 from the sale and add $200,000 to put $400,000 down with a $300,000 mortgage. This process satisfies the requirements of a 1031 exchange and allows you to defer capital gains tax.

2. Increase Your Leverage

Many people choose a 1031 exchange to increase leverage. You can put your money to work in a higher-income property, increasing your cash flow and helping you build equity faster.

Suppose you sell an investment property for $500,000, and you owed $100,000 on your mortgage at the time of the sale. You have your eye on a replacement property for $1 million. You can use the $400,000 from the sale and take out a mortgage for $600,000, satisfying the 1031 exchange requirements to defer capital gains tax.

3. Do a Partial 1031 Exchange

A 1031 exchange is not an all-or-nothing option. You can choose to use some of the money from a property sale while still deferring most of your tax liability.

Let’s say you sell a property for $500,000 with a $200,000 mortgage at the time of sale. You then decide to buy a property for $400,000, also with a $200,000 mortgage. The $100,000 you receive from the sale is taxable income — you’ll only pay taxes on the money that wasn’t rolled into the new property.

Why Choose 1031 Crowdfunding? 

At 1031 Crowdfunding, we offer the resources and expertise you need to streamline the 1031 exchange process. Our unique online marketplace includes fully vetted real estate properties that meet 1031 exchange requirements. What’s more, our expert team has over 115 years of real estate experience combined. We can support you through every stage of the 1031 exchange process, making it easier and faster to complete.

Create a free account today to browse our marketplace place and access all our 1031 exchange resources.

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