How much tax can you defer by trading up?

Tax you defer with a 1031

$134,064

That’s the tax bill you’d owe on a straight sale of this property. Doing a 1031 lets you push it to a future sale (or never, if you hold to death — heirs get stepped-up basis). With a 1031, you have $590,500 available to invest vs $456,436 after-tax — a buying-power difference of $536,256 at typical investor leverage (75% LTV).

How a 1031 exchange actually works

The basics: sell investment property, defer the cap gains and depreciation recapture taxes by reinvesting proceeds in like-kind investment property. "Like-kind" is broadly interpreted — almost any US real estate held for investment/business qualifies (residential rental, commercial, raw land, etc.).

The two deadlines (strict, no extensions):
• 45 days after sale to identify replacement property in writing
• 180 days after sale to close on the replacement

You can’t touch the money: proceeds must go directly to a Qualified Intermediary (QI). If you receive cash, even briefly, you blow the exchange.

Trade equal or up: replacement must be ≥ sale price AND replacement mortgage ≥ relinquished mortgage AND reinvest all cash. Anything less = "boot" = taxable to that extent.

Heirs get stepped-up basis: the holy grail of 1031s. If you keep exchanging until death, your heirs inherit at fair market value — wiping out all deferred gain. This is why some investors do exchange after exchange.

Costs: QI fees ($1,000-2,500). Hire a 1031-experienced QI; never self-direct. Also work with a CPA — getting it wrong = full taxation + penalties.

Doesn’t model: partial exchanges with boot, reverse exchanges, build-to-suit exchanges, related-party rules, foreign property exclusion, vacation home complexity. ALWAYS consult a 1031 QI and CPA before a real exchange.