1031 Exchange Boot Tax Calculator
Boot — cash or debt relief you receive without reinvesting — triggers gain recognition inside a 1031 exchange. This calculator estimates your recognized gain, breaks the tax into §1250 recapture, capital gains, and NIIT, and compares the result to a full taxable sale so you can see whether adjusting the exchange structure is worth it.
How boot is taxed in a 1031 exchange
A 1031 exchange defers gain recognition — but only on the portion you fully reinvest. Anything you receive back, in cash or as debt relief, is boot. The IRS recognizes gain equal to the lesser of (a) your total realized gain or (b) the total boot received.1
§1250 recapture is taxed first
The first dollars of recognized gain are treated as unrecaptured §1250 gain — the accumulated straight-line depreciation you claimed over the years. This portion is taxed at a maximum federal rate of 25%, regardless of your ordinary income bracket.2 For an investor who held a rental property for 15+ years, the depreciation balance can be substantial.
The rest is long-term capital gain
Once recognized gain exceeds accumulated depreciation, the remainder qualifies as §1231 long-term capital gain. For investors with income above $613,701 (MFJ, 2026) or $545,501 (single, 2026), the federal rate is 20%.3
NIIT adds 3.8% on top
Rental real estate is generally passive income. If your modified adjusted gross income exceeds $250,000 (MFJ) or $200,000 (single), the 3.8% net investment income tax under IRC §1411 applies on top of the recapture and capital gain tax.4 These thresholds are not indexed for inflation.
Mortgage boot is easy to overlook
Most investors know that keeping cash creates taxable boot. Fewer realize that reducing leverage also creates boot. If you pay off $1,000,000 in debt on the old property but only assume $700,000 on the new one, the IRS treats the $300,000 difference as money you received — mortgage boot — unless you compensate with extra equity invested. The calculator above captures both.
Five ways to reduce or eliminate boot
- Buy equal or greater value. Replacement property must be equal to or higher in price than the net sale value (after costs). Even a small shortfall creates value boot.
- Carry equal or greater debt. If you paid off $900K at closing, your new mortgage needs to be at least $900K — or you compensate with extra cash equity. Matching debt is the most commonly missed requirement.
- Reinvest all net equity. Any cash proceeds not wired to the qualified intermediary and then to the replacement property becomes cash boot. The QI account is not a parking spot; it is the pipeline.
- Use a DST to absorb residual equity. If you cannot find a direct replacement property that absorbs 100% of equity and debt, a Delaware Statutory Trust can absorb the balance as fractional replacement. See the DST guide.
- Accept the boot intentionally. Sometimes the math makes accepting boot worthwhile — if you need liquidity for another purpose, or if the tax on the boot is small relative to the exchange benefit. The calculator above shows the exchange still saves money even when boot is received.
For a full treatment of each strategy and worked scenarios, see the 1031 Exchange Boot Guide.
What the numbers mean for your exchange structure
This calculator is useful for stress-testing a planned exchange before the 45-day identification window starts. If the boot estimate is large, there are still options: negotiate the purchase price on the replacement property, line up a bridge loan to match debt, or add a DST position. Once you are in the 45-day window, those options narrow fast.
An exchange that produces $80,000 in boot tax may still save $400,000 compared to a taxable sale. Whether that tradeoff is worthwhile depends on what you do with the cash — which is where a financial advisor enters the picture alongside the CPA and qualified intermediary.
Carryover basis and the long-term picture
A 1031 exchange does not eliminate the deferred gain — it carries the gain forward through the carryover basis on the replacement property. If the replacement property is eventually sold taxable, the deferred gain plus any new gain will be recognized at that point. Estate planning — specifically the stepped-up basis at death — is one way the liability can disappear entirely. See the depreciation recapture guide for how that works over multiple holding periods.
- IRC §1031(b); Treas. Reg. §1.1031(b)-1 — recognition of gain on receipt of boot in a like-kind exchange.
- IRC §1(h)(1)(D) — 25% maximum rate on unrecaptured §1250 gain. Rate unchanged for 2026.
- IRS Rev. Proc. 2025-22 — 2026 capital gains rate thresholds: $613,701 MFJ / $545,501 single for 20% LTCG bracket.
- IRC §1411; IRS Topic No. 559 — 3.8% net investment income tax on passive income above $250,000 MFJ / $200,000 single threshold (not inflation-indexed).
Values verified June 2026. §1031 exchange mechanics confirmed unchanged under the One Big Beautiful Bill Act (OBBBA, July 2025).
Get matched with a 1031 exchange specialist
The boot tax calculation is one input into a larger decision: whether to exchange, which replacement property to target, how to structure the debt, and whether the deferred liability changes your estate plan. A fee-only financial advisor can model the full picture alongside your CPA, qualified intermediary, and lender.