Calculate how much tax you can defer with a like-kind exchange
A 1031 exchange (named after Section 1031 of the Internal Revenue Code) lets you defer capital gains taxes when you sell an investment property and reinvest the proceeds into a "like-kind" replacement property. The key word is defer — you're not eliminating the tax, you're pushing it into the future.
Boot is the portion of proceeds you don't reinvest. If your replacement property costs less than your sale price, the difference is "boot" and is taxable. To fully defer taxes, the replacement property must be equal or greater in value.
Depreciation recapture is taxed at 25% (not your regular capital gains rate). This applies to any depreciation you've claimed on the property. It's often the largest component of the tax bill on a sale.
All funds must flow through a Qualified Intermediary — you can never take constructive receipt of the money. Breaking the chain invalidates the exchange.