1031 Exchange Tax Deferral Calculator — California 2026

See exactly how much tax you defer by doing a 1031 exchange vs. selling outright. Calculate your reinvestment power and long-term wealth impact.

Enter your property details. All figures are for the property being sold.

Sale Price

Adjusted Cost Basis

Total Depreciation Taken

Selling Costs (commissions, fees)

Filing Status

Other Household Income

Your 1031 Exchange Analysis

Federal + California capital gains tax using 2026 rates

If You Sell Outright

Total Gain—

Depreciation Recapture Tax (25%)—

Federal Capital Gains Tax—

California Capital Gains Tax—

Net Investment Income Tax (3.8%)—

Total Tax Owed—

Net Proceeds to Reinvest—

With 1031 Exchange

Tax Deferred—

Tax Due Now$0

Boot (if any)$0

Total Tax Now$0

Full Proceeds to Reinvest—

Reinvestment Power

Key 1031 Exchange Rules

45-Day Identification Rule: You must identify your replacement property within 45 days of closing on the relinquished property. Missing this deadline kills the exchange.
180-Day Closing Rule: You must close on the replacement property within 180 days (or by your tax return due date, whichever is earlier).
Qualified Intermediary Required: You cannot touch the proceeds. A QI must hold the funds between transactions.
Like-Kind Property: Both properties must be held for investment or business use. Primary residences do not qualify.
California Clawback: California has a "clawback" rule — if you exchange into an out-of-state property and later sell it, California may tax the deferred gain. Plan accordingly.
Depreciation Recapture: The deferred depreciation recapture carries over to the replacement property. It is not eliminated — only deferred.

Planning a 1031 exchange?

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How a 1031 Exchange Works in California

A 1031 exchange (named after IRC Section 1031) allows real estate investors to defer capital gains tax and depreciation recapture tax when selling an investment property, provided they reinvest the proceeds into a "like-kind" replacement property. In California, this can defer both federal and state capital gains tax — which combined can exceed 35% of your gain.

The Power of Tax Deferral

By deferring taxes, you keep 100% of your equity working for you in the new investment. If you sell a property with a $600,000 gain and owe $200,000 in taxes, a 1031 exchange lets you reinvest the full $600,000 instead of just $400,000. Over time, this compounding effect can be worth far more than the tax itself.

California Clawback Rule

California has a unique "clawback" provision: if you exchange a California property for an out-of-state property and later sell that property, California will tax the deferred gain from the original California property — even though the sale occurs in another state. This is a critical planning consideration for California investors.

Frequently Asked Questions

Q: Can I do a 1031 exchange on my primary residence?
A: No. 1031 exchanges only apply to properties held for investment or business use. Primary residences do not qualify. However, you may qualify for the $250,000/$500,000 primary residence exclusion instead.

Q: What is "boot" in a 1031 exchange?
A: Boot is any non-like-kind property received in the exchange, including cash, debt relief, or personal property. Boot is taxable in the year of the exchange, even if the rest of the exchange is deferred.

Q: Can I exchange into multiple properties?
A: Yes. You can identify up to three replacement properties (or more under certain rules) and close on one or more of them within the 180-day window.

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Want KDA to Run the Exact Numbers for Your Situation?

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1031 Exchange Tax Deferral Calculator — California 2026