Sarah Martinez · Golden Key Realty
What does the tax bill look like if I just sell?
Capital gains, depreciation recapture and state tax on a straight sale, against deferring all of it into the next property — and what the difference buys with leverage.
1031 exchange vs selling outright
Tax you defer by exchanging
$219,178
Taxable gain
$638,000
Cash if you just sell
$608,822
Cash if you exchange
$828,000
| Sale price | $1,200,000 |
| Cost to sell | −$72,000 |
| Adjusted basisPurchase + improvements − depreciation claimed | $490,000 |
| Taxable gain | $638,000 |
| Depreciation recapture at 25% | −$40,000 |
| Federal capital gains at 20% | −$95,600 |
| Net investment income tax at 3.8% | −$24,244 |
| State tax at 9.3% | −$59,334 |
| Total tax on a straight sale | −$219,178 |
| Cash left after tax | $608,822 |
| Cash carried into an exchange | $828,000 |
| Buys, at 70% leverageSame equity, deferred instead of taxed | $2,029,407 → $2,760,000 |
Deferring $219,178 of tax leaves $219,178 more equity working, which at 70% leverage buys roughly $730,593 more property.
Deferred, not forgiven — the basis carries forward to the next property. The clock is unforgiving: 45 days to identify a replacement and 180 days to close, with a qualified intermediary holding the money from the moment escrow closes. Set it up before the sale, not after.
Deadlines are strict: 45 days to identify the replacement and 180 days to close, with a qualified intermediary holding the proceeds throughout. Talk to a CPA before you list.