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1031 Exchange vs Cash-Out Refinance Calculator1031 and borrow, or take the boot? Run both on your numbers.

Seven quick questions. We run the full year-by-year model three ways, bigger 1031 then borrow, structured boot, cash boot, and show which one leaves your family more, and what would flip it.

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  • Runs in your browser
  • Taxes, lender tests and the step-up, every year
  • Suspended losses counted

Boot or borrow, on your numbers

Question 1 of 7

What will the building sell for?

The contract price. A close guess is fine; you can change everything later.

%
Commissions, escrow, title and transfer tax.

Educational estimates on stated assumptions, not advice. Have your CPA run your numbers. How this site is paid.

Plan A: bigger 1031, then borrowBorrowing wins when you hold until death, the loan is cheap and the building keeps growing.

Plan B: 1031 plus structured bootThe structured boot wins when you might sell, rates are high, or you have coupons to cash.

How this works

Boot or borrow: what the calculator runs

An owner selling a rental who needs cash has two families of choices. Take boot: exchange most of the equity and keep some out, either as cash (taxed now) or as a structured installment note (taxed as it arrives). Or take no boot: exchange all of it into a bigger replacement, then borrow the cash against the new building after the exchange closes. Loan proceeds are not income, so nothing is taxed now, and if you hold until death the heirs' step-up in basis erases the deferred gain and the recapture.

The catch is everything that happens in between, and the calculator runs all of it, every year, on the same household return:

  • Plan A, bigger 1031 then borrow. The replacement is larger by the cash you want. The loan is interest only. The lender limits it to 60% of value and 1.25 times rent coverage and re-tests it every 5 years; if the test fails and your savings cannot pay it down, or spending cannot be funded, the building is sold and there is no step-up. Interest follows the use of the money: spent, it is personal and not deductible; invested, it is investment interest deductible up to investment income.
  • Plan B, 1031 plus structured boot. The replacement is smaller by the boot. The boot is set up before closing as a level note at the payout rate and term you enter. Basis goes to the like-kind property first, so nearly every boot dollar is gain, reported as principal arrives, recapture first. A note still unpaid at death is income to the heirs, with no step-up.
  • Plan C, 1031 plus cash boot. Same smaller replacement, the boot's gain taxed in the year of the exchange.

Every plan spends the same after-tax amount each year. The score is what the heirs keep after their own taxes and selling costs, less any spending a plan could not fund. If you choose "might sell", the replacement is sold in that year in every plan and the score is your after-tax wealth one year later.

Coupons: suspended passive losses

If you own other rentals or limited partnership interests that throw off passive losses, the unused losses sit in a bank on Form 8582. They can only be used against passive income, and gain on selling a rental is passive income. Boot turns part of your gain into passive income a slice at a time, which is exactly what those losses need. The bigger 1031 plus a loan creates no gain to use them against, and losses still suspended at death are largely lost. The calculator shows what the coupons were worth in each plan.

What it leaves out

Buyer or assignment company failure, amortizing or adjustable loans, the itemizing choice for investment interest, Section 199A, state estate taxes other than Oregon's, and gifts during life. Tax tables are 2026, held level after inflation, including the senior deduction through 2028. The model and its sources are in the book at thewaterfallstrategy.com. For the one-year tax on boot itself, use the 1031 boot calculator.

1031 vs cash-out refinance FAQ

Can I do a 1031 exchange and then a cash-out refinance?

Generally yes. Loan proceeds are not income, so borrowing against the replacement property after the exchange closes does not create boot. Refinancing the old property right before the sale draws more scrutiny. A refinance after closing, for your own reasons and on normal lender terms, is the cleaner path. Have your exchange counsel confirm the timing.

Is the interest on a cash-out refinance deductible?

Interest follows the use of the money (Treasury Regulation 1.163-8T). Money you spend on living costs makes the interest personal and not deductible. Money that sits in an investment account makes it investment interest, deductible only up to your net investment income. The calculator traces the loan that way every year.

What happens to the loan and the deferred gain at death?

Heirs receive the property with a basis stepped up to its value at death (IRC Section 1014), so the gain deferred through the exchange and the depreciation recapture are never taxed. The loan is still owed. The calculator has the heirs sell at a 5% cost and pay it off. An unpaid installment note does not get a step-up: the heirs pay income tax on it as it is collected.

What is structured boot in a 1031 exchange?

Structured boot is the part of your equity you do not reinvest, set up before closing as an installment note instead of cash, outside the qualified intermediary. The gain on it is reported as payments arrive under Section 453. In a structured sale the payments are owed to you by an assignment company, funded by a fixed annuity it owns, and the annuity pricing includes a commission.

What are coupons, and why do they favor boot?

Coupons here means suspended passive losses: the Form 8582 carryforward from other rentals or limited partnership K-1s, plus new passive losses each year. They can only offset passive income, and gain on selling a rental is passive income. Boot creates that gain a slice at a time. A full exchange plus a loan creates none, and losses still unused at death are largely lost.

When does borrowing lose to taking boot?

When you might sell before death (no step-up, so the deferred gain is taxed anyway after years of interest), when the loan rate is high compared with what the building earns, when values or rents stall, or when you have coupons that the boot gain would use. A lender that re-tests the loan can also force a sale if rents fall.

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