1031 Exchange Calculation

When determining potential savings resulting from a 1031 real estate exchange, there are several routes that are available. Having an attorney or other real estate professional do the work is one method, however that may not be cost effective.

There are also numerous online resources with calculators where the user can simply plug in the requested numbers and is then rewarded with the tax deferral advantages of a 1031 exchange. They may also determine the benefits manually from a specific formula.

Adjusted Basis of Property Conveyed Subtract the accumulated depreciation of the relinquished property from the original cost of the property. This difference is the Adjusted Basis of Property Conveyed.

Total Consideration Received Add the fair market value of the property that is received, any cash that is received, the fair market value of other boot received and the mortgage balance on the relinquished property. This sum is the Total Consideration Received.

Adjusted Basis of Property Relinquished Subtract the Adjusted Basis of Property Conveyed from the Total Consideration Received.

Total Consideration Given Add the Adjusted Basis of Property Relinquished, cash given, adjusted basis of other boot relinquished, mortgage incurred on property received and "out of pocket" exchange related expenses paid to arrive at the Total Consideration Given.

Gain Realized on Exchange Subtract the Total Consideration Given from the Total Consideration Received to arrive at the Gain Realized on Exchange.

Cash and Other Boot Received Add the cash received and the fair market value of other boot received to arrive at the Cash and Other Boot Received

Cash and Other Boot Relinquished Add cash given and the adjusted basis of other boot relinquished to find the Cash and Other Boot Relinquished.

Net Cash and Other Boot Received Add the Cash and Other Boot Received to the "out of pocket" exchange related expenses paid. Subtract the Cash and Other Boot Relinquished from this total. This is the Net Cash and Other Boot Received. However, if the number is negative, it is the Net Cash and Other Boot Paid.

Net Mortgage Relief Subtract the Mortgage Incurred on Property Received from the Mortgage on Property Relinquished (arrived at earlier in the equation) to arrive at the Net Mortgage Relief. If the difference is less than zero, then use 0.

Gain Recognized Add the Net Cash and Other boot Received to the Net Mortgage Relief. This number can not exceed the Gain Realized on Exchange. If this sum is negative, then use 0.

Adjusted Basis of New Property Add previous calculations in the equation: Adjusted Basis of Property Relinquished, Cash and Other Boot Conveyed and Mortgage Incurred on Property Received. This is Total 1. Add the Cash and Other Boot Received and the Mortgage on Property Relinquished to arrive at Total 2. Subtract Total 2 from Total 1 to reach Total 3.

Next, add the Gain Recognized on Exchange and the Exchange Expenses Paid as well as Total 3 to arrive at the Adjusted Basis of New Property.

This formula may be better understood if placed in a spreadsheet and the items numbered and in sequence. However, this is the equation for determining the 1031 exchange calculations.

1031 Tax |