1031 Exchange Boot & 25% Depreciation Recapture Calculator Guide (2026): Deferring Federal, 3.8% NIIT & NY/NJ/FL Real Estate Taxes
Calculate 2026 IRC § 1031 exchange capital gains deferral, taxable cash and mortgage boot, 25% IRC § 1250 depreciation recapture, and NY/NJ to Florida exchange rules.
By Pablo Cirre Gómez and East Corp Capital Quantitative Desk
When a New York City, Westchester, or New Jersey landlord sells a long-held multi-family or mixed-use building after 15 to 25 years of ownership, the most painful line item on the tax return is often not the 20% federal capital gains rate—it is the 25% IRC § 1250 Unrecaptured Depreciation Tax stacked on top of the 3.8% Net Investment Income Tax (NIIT) and 10.75% to 14.776% state and local taxes. Executing a properly structured IRC § 1031 Like-Kind Exchange defers 100% of all four tax layers—provided you avoid triggering accidental Cash Boot or Mortgage Relief Boot.
1031 Exchange, Taxable Boot & 25% Depreciation Recapture Calculator (2026)
Computes deferred Federal, 3.8% NIIT, and NY/NJ/FL capital gains taxes, IRC § 1250 25% unrecaptured depreciation tax, and taxable cash/mortgage boot when trading investment property.
Why Selling a Depreciated NYC or NJ Building Without a 1031 Exchange Costs Up to 43.6%
Suppose you bought a Brooklyn six-family brownstone 15 years ago for $950,000, claimed $340,000 in straight-line residential depreciation (reducing your adjusted tax basis to $610,000), and sell it today for $2,200,000 ($2,090,000 net of 5% selling costs). Your total realized gain is $1,480,000—split into two distinct IRS buckets:
- Bucket 1 — $340,000 of Unrecaptured Section 1250 Depreciation: Taxed at a federal maximum rate of 25.0% + 3.8% NIIT + 14.776% NYS/NYC tax = 43.576% ($148,158 tax).
- Bucket 2 — $1,140,000 of Capital Appreciation: Taxed at 20.0% federal LTCG + 3.8% NIIT + 14.776% NYS/NYC tax = 38.576% ($439,766 tax).
Without a 1031 exchange, taxes consume $587,924—wiping out more than 44% of your net cash proceeds after paying off a $750,000 mortgage.
2026 Statutory Schedule & Jurisdiction Benchmark Table
| Scenario / Statutory Rule | 2026 Rate / Metric | Dollar Impact / Threshold | Legal Citation & Note |
|---|---|---|---|
| IRC § 1250 Unrecaptured Depreciation | 25.0% Fed + 3.8% NIIT + State | Up to 43.58% combined tax in NYC on prior depreciation taken | IRC § 1(h)(1)(E) & § 1250 |
| Long-Term Capital Gain (Appreciation) | 20.0% Fed + 3.8% NIIT + State | Up to 38.58% combined tax in NYC (34.55% in NJ) | IRC § 1 & § 1411 |
| 45-Day Identification Window | Calendar Day 45 (No Extensions) | Must identify up to 3 properties (or 200% FMV rule) in writing to QI | Treas. Reg. § 1.1031(k)-1(b) |
| 180-Day Closing Deadline | Earlier of Day 180 or Tax Due Date | File Form 4868 extension if closing falls between Jan 1 and Apr 15 | IRC § 1031(a)(3)(B) |
The Two Golden Napkin Rules to Achieve $0 Taxable Boot
To defer 100% of both buckets on IRS Form 8824, your replacement property acquisition must satisfy two strict rules: (1) Purchase Price ≥ Net Sale Price (Contract Sale Price minus routine brokerage, title, and transfer tax selling costs), and (2) Replacement Debt (or New Cash Added) ≥ Relinquished Debt Paid Off. Remember: while you can always offset a smaller replacement mortgage by putting in extra cash out of pocket (“cash offsets mortgage boot”), you can never offset taking cash off the table by taking on a bigger mortgage (“mortgage debt never offsets cash boot”).
Frequently Asked Questions & Statutory Rules (2026)
Can I 1031 exchange a New York City co-op apartment held as an investment?
Yes! In Private Letter Rulings (including PLR 200137032 and Rev. Rul. 90-38), the IRS has confirmed that long-term proprietary leases and shares in a New York cooperative housing corporation held for investment or rental qualify as like-kind "real property" eligible for an IRC § 1031 exchange.
What is a Delaware Statutory Trust (DST) and why do NYC landlords use it as a 45-day backup?
Under IRS Revenue Ruling 2004-86, fractional beneficial interests in a Delaware Statutory Trust (DST) owning institutional triple-net apartments, medical offices, or industrial logistics centers qualify as like-kind replacement property for a 1031 exchange—allowing landlords to list a DST as their "3rd identified property" on Day 45 to guarantee zero boot and passive cash flow.
What happens if I eventually pass away while holding my 1031 replacement property ("Swap ’Til You Drop")?
Under IRC § 1014, when an investor holds their 1031 replacement property until death, their heirs receive a full "step-up in basis" to fair market value on the date of death—permanently eliminating both the deferred capital gains tax and all cumulative Section 1250 depreciation recapture!
Why must I file Form 4868 if I close my relinquished property sale between October 19 and December 31?
Under IRC § 1031(a)(3)(B), your exchange closing deadline is the EARLIER of 180 calendar days after the sale OR the due date (including extensions) of your tax return for the year of the sale. If you sell on November 15, April 15 is only 151 days later—so you must file a Form 4868 tax extension before April 15 to get your full 180 days!