See how much federal, California state, and depreciation recapture tax a like-kind exchange could defer on your investment property.
An investor sold a duplex in San Carlos in October 2026 for $2,400,000. The property was purchased in 2011 for $820,000; selling costs (commission, escrow, transfer tax) came to $144,000. Over 15 years of ownership, $310,000 in depreciation had been taken. The investor's federal capital gains rate was 20% plus 3.8% NIIT, and California marginal rate was 13.3%. To isolate what a 1031 exchange deferred, enter these numbers into the calculator above:
Net proceeds: $2,256,000. Adjusted basis (after depreciation): $510,000. Total gain: $1,746,000 ($1,436,000 capital gain + $310,000 recapture). Estimated tax on an outright sale: roughly $663,000, money the 1031 lets the investor roll into a replacement property without paying first.
The investor identified three replacement properties within the 45-day window (IRC §1031(a)(3)) and closed on a Redwood City fourplex within 180 days. The figures here are illustrative; your CPA will run the exact calculation against your full-year income picture.
Real property held for investment or productive use in a trade or business. Personal residences, fix-and-flip inventory, and partnership interests do not qualify. The replacement property must also be held for investment or business use. Like-kind is broadly defined for real estate: a Peninsula rental can be exchanged for raw land, a strip mall, an apartment building, or a Delaware Statutory Trust (DST) interest.
Under IRC §1031(a)(3), from the day you close on the relinquished property, you have 45 calendar days to formally identify potential replacement properties in writing to your Qualified Intermediary, and 180 calendar days total to close on one or more of the identified properties. Both deadlines run simultaneously, not back-to-back, so the 180-day clock starts the day you close on the relinquished property, not after the 45-day window closes. The IRS covers these rules in Publication 544 (Sales and Other Dispositions of Assets).
Identification must be in writing, signed by you, and delivered to a party that is not a "disqualified person" under Treas. Reg. §1.1031(k)-1(c); your Qualified Intermediary qualifies. The writing must unambiguously describe each property (street address or legal description for real property). You may identify up to three properties without restriction (the "three-property rule"), or more than three if the aggregate fair market value of all identified properties does not exceed 200% of the sale price of the relinquished property (the "200% rule"). Verbal identification does not count; email to your QI is acceptable if your QI's agreement allows it.
The exchange fails. If no replacement property is identified in writing within 45 calendar days of closing the relinquished property, the exchange is disqualified and the proceeds held by the QI are treated as taxable boot. The QI will release the funds back to you, and the full gain from the sale becomes taxable in the year of sale. There are no IRS extensions for missed identification deadlines. The only exceptions are for federally declared disasters, which are addressed through IRS Notice procedures.
The 180-day window is strictly fixed under IRC §1031(a)(3). No administrative extension is available except in the event of a federally declared disaster, where the IRS may issue extensions through a Revenue Procedure or Notice. In practice, this means that if you are selling late in a calendar year, your 180-day window may end before your federal tax return is due, so you should confirm with your CPA whether the exchange deadline falls before or after your April filing deadline, since the 180-day period is also limited to the due date of your return (including extensions) for the year of the sale if that falls sooner. See IRS Publication 544 for details on the deadline interaction.
It carries over to the new property. You don't pay 25% recapture tax now, but the deferred recapture is added to your basis tracking and triggered when you eventually sell without another exchange. For a Peninsula investor with $400K of accumulated depreciation, deferring this $100K of immediate tax is often the single biggest reason to choose a 1031 over an outright sale.
If you exchange a California property for one outside California, the deferred California gain is "clawed back" when the out-of-state replacement is eventually sold. You're required to file FTB Form 3840 each year you hold the out-of-state property. Many investors are caught off-guard by this years later. The deferral still works, but California will collect its tax eventually unless the chain continues.
Lisa works with seasoned Qualified Intermediaries and CPAs and has sourced replacement properties for investors moving in and out of California.
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