1031 Exchange Rules 2026: 45/180-Day Deadlines, Boot and the Tax You Defer
How a like-kind exchange of real estate works in 2026, the deadlines that make or break it, and a calculator for the federal and state tax it puts off.
A 1031 exchange lets you sell investment or business real estate and put off the tax on the gain by buying like-kind real property: identify the replacement within 45 days and close within 180 days (or by your return’s due date, if earlier) (Form 8824 instructions). Example (computed): a married couple with $120,000 of other income selling for $900,000 a rental with a $400,000 adjusted basis and $150,000 of depreciation taken defers $98,788 of 2026 federal tax, or $144,840 with California’s.
Last updated 2026-11-04. Sources are linked next to each figure and listed at the end.
The rules
| Rule | What it requires | Source |
|---|---|---|
| Real property only | Since 2018, only real property held for business or investment qualifies; equipment, vehicles, art and other personal or intangible property do not. Property held mainly for sale does not qualify | IRS |
| Like-kind | Real properties are generally like-kind whether improved or not (an apartment building for land, for example); U.S. real property is not like-kind to foreign real property | IRS |
| 45-day identification | Identify the replacement in writing within 45 days after transferring the property you give up | Form 8824 instr. |
| 180-day exchange period | Receive the replacement by the 180th day or the due date (with extensions) of that year’s return, whichever is earlier | Form 8824 instr. |
| How many properties | Up to three properties of any value, or any number whose total value is at most 200% of what you sold, or more if you acquire at least 95% of the value identified | §1.1031(k)-1(c)(4) |
| Qualified intermediary | In a deferred exchange the proceeds go to a qualified intermediary, not to you; your agent or a related party cannot serve | Form 8824 instr. |
| Boot | Cash or other non-like-kind property received is taxed up to the gain; so is debt relief not offset by new debt or cash you add. A loss is never recognized | IRS |
| Related parties | Exchanges with family or related entities have extra holding rules | §1031(f) |
| Reporting | Form 8824 with the return for the year you gave up the property | Form 8824 instr. |
The tax a 1031 exchange defers (2026)
Adjusted basis = what you paid plus improvements, minus the depreciation taken. The gain is treated as long-term; the depreciation part as unrecaptured section 1250 gain.
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Where the deferred tax comes from (example, computed)
| Part | No state | California |
|---|---|---|
| Federal income tax on the gain (0/15/20% and up to 25%) | $84,728 | $84,728 |
| of which the extra from the 25% unrecaptured §1250 rate | $11,393 | $11,393 |
| Net investment income tax (3.8%) | $14,060 | $14,060 |
| State income tax | $0 | $46,052 |
| Tax deferred by the exchange | $98,788 | $144,840 |
Depreciation taken on a building is “unrecaptured section 1250 gain”, taxed at up to 25% instead of 15% or 20% (IRC §1(h)(1)(E)); the 3.8% net investment income tax applies above $200,000 of modified AGI single or $250,000 joint (IRS). Not modelled: recapture on section 1245 property at ordinary rates, suspended passive losses freed by a sale, state-specific recapture rules and local taxes.
Swap until you drop: the step-up at death
The deferred gain carries into the replacement property’s basis, so the tax is postponed, not forgiven. But property inherited at death generally takes a basis equal to its fair market value at the date of death (IRC §1014), so gain deferred through a chain of exchanges and never sold during the owner’s life can escape income tax entirely. That is the strategy investors call “swap until you drop”. Estate tax is a separate question.
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Run the free retirement planner →Common questions
What is a 1031 exchange in real estate?
A swap of business or investment real property for other like-kind real property under IRC §1031, in which the gain is not taxed now but carried into the new property’s basis. Since 2018 only real property qualifies (IRS).
What are the 45-day and 180-day rules?
You must identify the replacement property in writing within 45 days after transferring the property you give up, and receive it within 180 days or by the due date of that year’s return (including extensions), whichever comes first (Form 8824 instructions).
What is boot in a 1031 exchange?
Cash or other property that is not like-kind, including net debt relief, received in the exchange. Gain is taxed up to the amount of boot (IRS).
How much tax does a 1031 exchange save?
It defers the tax the sale would have caused that year: federal capital-gain tax (with depreciation taxed at up to 25%), the 3.8% net investment income tax and state tax. In the example above that is $98,788 federal, $144,840 with California. Use the calculator for your numbers.
Can I do a 1031 exchange on my home?
No. A home you live in is not held for business or investment; the separate home-sale exclusion may apply instead.
Sources
- IRS: Like-kind exchanges — real estate tax tips
- IRS: Instructions for Form 8824
- Treas. Reg. §1.1031(k)-1 (deferred exchanges)
- 26 U.S.C. §1031
- 26 U.S.C. §1(h) (the 25% rate on unrecaptured §1250 gain)
- IRS: Net Investment Income Tax
- 26 U.S.C. §1014 (basis of inherited property)
The tax figures are computed by frontend/js/calc/exchange-1031-2026.js on the federal and state engine copies (federal with POST /api/federal-tax’s options, the depreciation part as unrecaptured section 1250 gain); the rules are quoted from the IRS documents above, read on 2026-11-04. QuantCalc is calculation software, not tax, legal, insurance or investment advice.
Related
2026 capital gains tax rates → Rental income tax in retirement by state → Net investment income tax calculator → State tax calculator →