Selling investment property?The 1031 exchange clock starts at closing.Plan before you sell
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Equity and debt replacement

Your sale price is only the first number.

Remaining debt, net exchange proceeds, replacement value, and new financing can all affect how much gain is deferred.

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A first-pass estimate

Start with sale price minus remaining debt.

This rough equity estimate is useful for planning. It is not the same as net exchange proceeds, taxable gain, or the amount required for full deferral.

Conservative planning example$1 million sale · $500,000 mortgage payoff
01

Enter the sale

Start with two numbers.

Use your best estimate if the property is not under contract. Selling expenses are intentionally left out of this conservative replacement calculation.

The gross contract price before the mortgage payoff, selling expenses, or other closing adjustments.Use the expected contract price or your broker's best estimate.
Use the mortgage principal or payoff estimate expected to be satisfied when the property sells—not the monthly payment.Enter $0 if there is no mortgage.
02

Your starting point

What should you conservatively plan to replace?

Conservative replacement-property target$1,000,000

This calculator uses the full expected sale price as the conservative starting target.

Equity before selling expenses$500,000Expected sale price minus the mortgage payoff.
Mortgage paid off at closing$500,000The mortgage expected to be satisfied at the sale.
Estimated sale LTV50.0%Mortgage payoff divided by expected sale price. This describes the property being sold, not financing for a replacement property.

$500,000 equity before selling expenses + $500,000 mortgage paid off = $1,000,000 conservative target

What this means

If the property sells for $1,000,000, a conservative starting point is to look for replacement real estate totaling at least $1,000,000. This does not mean the replacement property must have a $500,000 loan. New debt and additional cash are separate financing decisions.

OptionalEstimate the cash that may reach your qualified intermediary
Separate from the conservative target
Modeled selling expensesThis separate cash estimate includes selling expenses. Not every closing-statement item is an exchange expense, so confirm the final amount with your CPA and qualified intermediary.
$60,0006% educational estimate
Estimated cash after the mortgage and modeled selling expenses$440,000

$1,000,000 sale − $500,000 mortgage − $60,000 modeled expenses = $440,000

This after-cost cash estimate is intentionally separate from the conservative replacement target above. The target does not subtract selling expenses; your CPA and qualified intermediary should confirm the transaction-specific amount.

Want help confirming the numbers?

Send Daniel your conservative starting point.

Your expected sale price, mortgage payoff, equity before selling expenses, conservative replacement target, and optional tax estimate will travel with the inquiry.

Send Daniel these numbers
Optional tax comparison

What if you sell and pay the estimated taxes now?

This separate illustration uses the modeled selling expenses above and requires tax-basis assumptions. Review every input before asking the calculator to show a result.

Review or enter tax informationOptional

The $1 million example uses $60,000 of modeled selling expenses, a $600,000 original purchase price, $250,000 of depreciation, and a 5% state-tax rate. Replace these figures with your records before relying on the comparison.

The original purchase price before later improvements and depreciation. Your tax basis can be very different after a prior 1031 exchange, gift, inheritance, or other adjustment, so use your depreciation schedule or ask your CPA.
Qualifying capital additions that increased the property's tax basis, such as major renovations—not routine repairs.
Basis generally must be reduced by depreciation you deducted or could have deducted, even if you claimed less or none.Use the allowed-or-allowable amount from your tax records when available.
The federal rate applied here to appreciation after separating the simplified depreciation-related gain.
A simplified maximum-rate illustration for unrecaptured Section 1250 gain. Actual character and rate require tax advice.%
Actual NIIT is 3.8% of the lesser of net investment income or the amount by which modified adjusted gross income exceeds the filing-status threshold. This screen applies 3.8% to all modeled gain and may be higher than actual tax or apply when none is due.
A user-controlled planning rate. States differ materially; enter zero where appropriate or use a CPA-provided estimate.%The starter example uses 5% only as a visible assumption.

This is a no-exchange tax screen, not a tax-return calculation. Prior exchanges, depreciation character, passive losses, filing status, entity structure, and state rules can materially change the result.

Review the tax assumptions above, then select “Show the estimated comparison.”

Educational illustration only. The conservative target uses the gross expected sale price and intentionally does not reduce that target for selling expenses. The optional cash and tax screens use a 6% starting estimate unless changed. They do not calculate taxable boot, recognized gain, financing availability, or final taxes. Confirm transaction-specific results with your CPA, attorney, qualified intermediary, and lender.

Why debt matters

Selling property can relieve the owner of a mortgage. If that relieved debt is not offset by replacement debt or additional cash, some gain may be recognized. This is commonly discussed as debt relief or mortgage boot.

There is no rule that replacement property must use the same loan. The planning question is whether the combination of replacement value, reinvested proceeds, replacement liabilities, and added cash supports the intended tax outcome.

A simplified illustration

Sale price$1,500,000
Less remaining debt($500,000)
Rough equity before costs$1,000,000

If the owner acquires only a $1.0 million replacement property, the value is below the $1.5 million property sold. Even if every dollar of rough equity is reinvested, the debt relief can still matter. Buying equal-or-greater value and carefully planning debt or additional cash is a common full-deferral objective.

Numbers to confirm with your advisers

  • Adjusted tax basis, depreciation, and transaction-specific gain
  • Actual debt payoff, sale expenses, and net proceeds sent to the QI
  • Cash or other property you expect to receive
  • Replacement purchase price, closing costs, and financing
  • Whether multiple replacement interests close on different dates
  • State tax treatment and entity or title changes

Primary educational source

IRS Instructions for Form 8824 ↗

This page is an educational overview, not a calculation of your tax or a conclusion that any transaction will qualify.

Before the sale closes

Bring the sale price and debt into the conversation early.

Share your expected sale price and remaining debt. We will help organize the questions to take to your qualified intermediary, tax adviser, and investment team.

Build my 1031 plan Schedule with Daniel