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.

Interactive 1031 illustration

Start with a realistic example. Replace only what you know.

The calculator opens with a $1 million sale, 50% mortgage payoff, and a 6% planning estimate for potentially eligible exchange and disposition expenses. Every assumption remains editable.

$1M sale · 50% mortgage payoff · 6% disposition-cost estimate
01 Your sale
The expected contract price before paying off the mortgage or disposition costs.Use the best current estimate from your broker or purchase contract.
The remaining principal or other mortgage liability expected to be satisfied at closing. Lender fees and payoff charges may reduce cash proceeds but should not automatically be treated as debt relieved.Use the best available principal balance or lender payoff estimate, then confirm the liability amount with your tax adviser.
Estimated eligible disposition expensesA planning allowance for brokerage, legal, deed-preparation, transfer, recording, and similar disposition items that may qualify as exchange expenses. Taxes, rent prorations, deposits, repairs, and loan costs do not automatically qualify. Confirm the closing statement with your QI and tax adviser.
$60,0006.0% planning assumption
What is in the 6% estimate?

5%Negotiated brokerage planning assumption

1%Legal, deed-preparation, transfer, recording, and similar potentially eligible expense allowance

This is a starting assumption, not a national average. Brokerage is negotiable, location matters, and not every closing-statement item is an exchange expense. QI fees, acquisition costs, taxes, rent prorations, security deposits, repairs, loan costs, and reserves are not included here.
02 Estimate potential taxesOptional

The starter example uses an illustrative basis, depreciation, and 5% state-tax rate. Replace these with your tax records or leave this section closed and treat the tax result as an example only.

What you paid for the property before later improvements and depreciation. Your tax basis can differ, so use tax records when available.
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 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. Actual NIIT, depreciation character, prior exchanges, passive losses, filing status, entity structure, and state rules can materially change the result.

03 · Replacement property builder

Start with one property. Split the plan only if you need to.

Assign the estimated exchange proceeds, then enter a replacement loan, extra cash, or a combination. The builder starts with the sale-derived funding gap—not a loan recommendation.

Estimated exchange proceeds$440,000
Replacement-value illustration$940,000
Amount to fund beyond QI proceeds$500,000
Start from the sale-derived plan$440,000 estimated QI proceeds + $500,000 loan and/or added cash = $940,000 replacement value.
How many replacement properties are you considering?Start with one. Add more only if you want to divide the exchange.
Property 1100% of estimated exchange proceeds
Exchange proceeds assigned hereWith one replacement property, the builder automatically assigns all estimated exchange proceeds to it.
100%$440,000
All estimated exchange proceeds
Cash contributed in addition to the estimated exchange proceeds. Added cash can cover part or all of the remaining replacement funding gap.Lower the loan by the same amount to keep the illustrated purchase value unchanged.
A dollar estimate for financing on this replacement property. Loan availability and terms are not assured. You may use added cash instead of some or all of this amount.
Estimated property value$940,000
Calculated loan-to-value53.2%
Total equity invested$440,000

Next, add your contact details and choose a meeting time. Your sale assumptions and replacement-property scenario will come with you.

Continue with this scenario

Educational illustration only. The 6% eligible-expense assumption is a starting estimate, not a national average. QI fees and other exchange-only or acquisition costs are excluded, and total closing-statement costs are not the same as tax-recognized exchange expenses. Estimates may omit prior exchanges, cost-segregation or Section 1245 items, passive losses, entity structure, state-specific rules, tax brackets, and nonqualified costs. 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.

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