What taxes can be deferred using an IRC Section 1031 like-kind exchange?

IRC Section 1031 allows real estate investors to defer 100% of federal capital gains taxes, Section 1250 depreciation recapture (25%), 3.8% NIIT surtax, and state income taxes when rolling proceeds from an investment property into like-kind replacement real estate within strict 45-day identification and 180-day closing deadlines.

What are the strict statutory deadlines for identifying and closing on a 1031 exchange?

Under Treasury Regulation Section 1.1031(k)-1, the taxpayer must formally identify potential replacement properties in writing within strictly 45 calendar days of closing on the relinquished property. The replacement property must be acquired and closed within 180 calendar days, or the tax return due date (with extensions), whichever is earlier. Weekends and federal holidays do not extend these deadlines.

How does California FTB Form 3840 clawback tracking affect out-of-state 1031 exchanges?

Under California Revenue and Taxation Code Sections 18032 and 24953, taxpayers who defer gain on California real estate by acquiring out-of-state replacement property must file FTB Form 3840 annually with California. If the replacement property is later sold in a taxable transaction, California taxes the original deferred gain, even if the taxpayer is no longer a resident.

Commercial Real Estate Intelligence

Section 1031 Real Estate Exchange & Capital Gains Deferral Calculator

Calculate capital gains tax deferral, Section 1250 depreciation recapture, and 45-day/180-day deadlines under IRC Section 1031 for 2026-2027.

Exchange Parameters (2026-2027)

Model real estate capital gains deferral, Section 1250 depreciation recapture, and multi-state tax drag.

Relinquished Property Sale Price ($)

Adjusted Cost Basis ($)

Accumulated Section 1250 Depreciation ($)

Relinquished State

Replacement State

Replacement Purchase Price ($)

Tax Deferral & Basis Projection

Total Tax Liability Deferred

$706,350

Tax Drag Avoided: 28.25% of Gross Sale

Total Realized Gain

$1,850,000

New Replacement Basis

$650,000

Statutory Tax Liability Avoided (Taxable Sale Scenario)

Federal Straight Capital Gain (20.0%) $290,000

Section 1250 Depreciation Recapture (25.0%) $100,000

Net Investment Income Tax (NIIT 3.8%) $70,300

Relinquished State Income Tax (CA 13.3%) $246,050

Statutory Treasury Deadlines

45-Day Identification Window: Must identify replacement properties in writing by midnight of calendar day 45.
180-Day Exchange Period: Must complete purchase and take title by midnight of calendar day 180.

Mandatory Clawback Notice: California FTB Form 3840

California enforces an ongoing clawback statute. Relinquishing California real estate to purchase out-of-state property requires filing FTB Form 3840 annually to report the deferred gain until final taxable disposition.

2026-2027 Interstate Section 1031 Arbitrage Matrix ($2.5M Commercial Asset)

Empirical comparison of capital gains deferral and state tax drag across primary commercial real estate migration corridors.

Relinquished State	Replacement State	State Tax Drag Avoided	Total Tax Deferred	Effective Rate	Clawback Compliance
California (13.3%)	Texas (0.0%)	$246,050	$706,350	28.25%	FTB Form 3840 Annual Filing
California (13.3%)	Florida (0.0%)	$246,050	$706,350	28.25%	FTB Form 3840 Annual Filing
New York (10.9%)	Florida (0.0%)	$201,650	$661,950	26.48%	IT-205 Allocation
New Jersey (10.75%)	Texas (0.0%)	$198,875	$659,175	26.37%	NJ-1040 Deferral
Massachusetts (9.0%)	New Hampshire (0.0%)	$166,500	$626,800	25.07%	Schedule D Annual Tracking
Oregon (9.9%)	Washington (0.0%)	$183,150	$643,450	25.74%	Form 1031 Annual Report

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