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Fundamento

How do I minimize tax on real estate?

You're selling an appreciated investment property. Three paths: pay the tax now, 1031-exchange into another property, or roll the gain into a Qualified Opportunity Fund. Same numbers, three very different outcomes.

The sale
Your tax situation
Opportunity Zone projection (optional)
Saved scenarios sync to your dashboard.

Three tax paths, same numbers

Net sale $845,000 $900,000 − $55,000 costs
Total gain $395,000 net sale − basis $450,000
Depreciation recapture $120,000 taxed at up to 25% federal
Long-term cap gain $275,000 taxed at 28.8% combined

Path 1 · Pay tax now, take cash

$725,240
  • Net sale proceeds: $845,000
  • − Depreciation recapture tax: $40,560 (at 33.8%)
  • − Capital gains tax: $79,200 (at 28.8%)
  • = Cash in hand today: $725,240

Path 2 · 1031 exchange (defer all tax) — lowest tax / highest end-state

$845,000
  • Reinvested in like-kind property: $845,000
  • Tax deferred (not eliminated): $119,760
  • If held to death → stepped-up basis → tax disappears for heirs
  • Projected value in 7 yrs at 5%/yr: $1,189,000

Path 3 · Qualified Opportunity Fund Pro

Full QOF modeling with growth projection, 10-year step-up, and rural-vs-non-rural comparison is included on the Pro tier.

Decision: The 1031 exchange wins by reinvesting your full $845,000 pre-tax instead of $725,240 post-tax. The leverage is the deferred tax — you compound on a bigger base. Catch: you must identify the replacement in 45 days and close in 180.

Next step for the 1031

Start your 1031 with a qualified intermediary Funds in segregated FDIC accounts; 24–48hr setup.
Reality check: 1031 exchanges have rigid timelines (45/180 days) and require a Qualified Intermediary — set up before you close. QOFs are securities transactions with sponsor risk and reduced liquidity. A 30-minute call with a real estate CPA before the closing date can save you from a five- or six-figure mistake.
Need to actually execute this?

Premier members get integrated access to: vetted 1031 Qualified Intermediaries ($1,500–$3,000), AI-assisted cost segregation studies (from $2,500 vs. $5K–$25K traditional), and a curated marketplace of real-estate-specialist CPAs and attorneys for entity structuring and decisions on OZ Funds.

See Premier tier

What this calculator doesn't model

Read these next in the Library

1031 exchange — defer the tax forever (or until death)

The mechanics, the 45/180 day windows, and how it chains with step-up at death.

Opportunity Zones (OZ 2.0) — now permanent

What the OBBB Act (July 2025) changed, and the rural QROF enhancements.

Step-up in basis at death

The most underused estate strategy. Combined with 1031, it eliminates lifetime gains entirely.

Cost segregation — accelerate depreciation

Reclassifies 20–30% of basis into shorter-life buckets; worth a $3K–$10K study on properties over $500K.
How the math works (plain English)

When you sell an investment property, two things get taxed. Capital gain is the price above your basis — taxed at long-term rates (15% or 20% federal, plus state, plus 3.8% NIIT if you're high-earning). Depreciation recapture is the depreciation you wrote off over the years — it comes back as ordinary income, capped at 25% federal.

A 1031 exchange (IRC §1031) defers all of that tax if you reinvest the entire proceeds into "like-kind" real estate. Strict timing: 45 days to identify the next property; 180 days to close. Most serious rental investors trade up through 1031s for decades, then hold until death — at which point heirs get a stepped-up basis and the embedded gain disappears entirely.

A Qualified Opportunity Fund defers the original gain until 2026 (now extended/permanent under the OBBB Act of July 2025), and — this is the powerful part — any appreciation on the QOF itself is tax-free if you hold for 10+ years. The first new round of QOZ designations under the OBBB takes effect Jan 1, 2027.

These are real money decisions. Use this to size the choice and narrow the conversation — then run the final structure past a CPA and a real estate attorney before you sign anything.