What’s the Minimum Amount Where a 1031 Exchange Makes Sense?

Question

I was having a conversation recently about 1031 exchanges and it got me thinking.

As most of you know, there’s no legal minimum amount of gain or property value required to do a 1031. The real deciding factor is whether the tax deferral is worth the cost of hiring a Qualified Intermediary (QI) and covering related fees.

This had my brain churning and I was curious as to:

1. What dollar amount of gain (or property value) have you personally found is the “break-even point” where a 1031 is worth it?

2. At what point do you decide it’s easier or cheaper to just pay the capital gains and move on?

3. For those of you who do a lot of these, what’s the gain where you see people utilizing 1031 exchanges?

Thanks in advance for sharing your experience.

Ricardo R. · Answer

Hey Chris,

We’ve run into this a bunch with our own deals and clients, so here’s what we’ve actually seen in the real world:

1. Typical Costs for a 1031

• Qualified Intermediary (QI): Usually $800–$1,200 for a single exchange.
• Closing costs + legal: Add another $1–2K depending on the complexity.
• So total, you’re probably out $2–3K all-in for a simple exchange.

Qualified Intermediary (QI): Usually $800–$1,200 for a single exchange.

Closing costs + legal: Add another $1–2K depending on the complexity.

So total, you’re probably out $2–3K all-in for a simple exchange.

2. Break-Even Examples

• $50K Gain:


$50K × 20% Fed LTCG tax = $10K taxes.


$3K in fees = definitely worth it.
• $50K × 20% Fed LTCG tax = $10K taxes.
• $3K in fees = definitely worth it.
• $20K Gain:


$20K × 20% = $4K taxes.


$3K in fees = starts to feel borderline—especially if you just want a clean exit.
• $20K × 20% = $4K taxes.
• $3K in fees = starts to feel borderline—especially if you just want a clean exit.
• Under $15K Gain:


We’ve seen people skip the 1031 altogether because the tax savings barely outweigh the hassle.
• We’ve seen people skip the 1031 altogether because the tax savings barely outweigh the hassle.

$50K Gain:

• $50K × 20% Fed LTCG tax = $10K taxes.
• $3K in fees = definitely worth it.

$50K × 20% Fed LTCG tax = $10K taxes.

$3K in fees = definitely worth it.

$20K Gain:

• $20K × 20% = $4K taxes.
• $3K in fees = starts to feel borderline—especially if you just want a clean exit.

$20K × 20% = $4K taxes.

$3K in fees = starts to feel borderline—especially if you just want a clean exit.

Under $15K Gain:

• We’ve seen people skip the 1031 altogether because the tax savings barely outweigh the hassle.

We’ve seen people skip the 1031 altogether because the tax savings barely outweigh the hassle.

3. What We Actually See

• Most investors we know start considering 1031s seriously when gains hit $40–50K+.
• Heavy users are usually at six figures in gains or doing portfolio consolidation moves (e.g., 3 SFRs into 1 multifamily).

Most investors we know start considering 1031s seriously when gains hit $40–50K+.

Heavy users are usually at six figures in gains or doing portfolio consolidation moves (e.g., 3 SFRs into 1 multifamily).

4. When People Just Pay the Taxes

• When they want zero time pressure to find a replacement property.
• When gains are under $20–25K and they’d rather keep life simple.
• When they want to use proceeds for non-real estate purposes—since 1031 locks you into RE.

When they want zero time pressure to find a replacement property.

When gains are under $20–25K and they’d rather keep life simple.

When they want to use proceeds for non-real estate purposes—since 1031 locks you into RE.

If it were me:

• $40K+ gain = I’d lean toward a 1031.
• Under $20K = I’d probably just pay the taxes and move on unless it was rolling into a bigger portfolio play.
• This is just my opinion and view on it, others might have different criteria for what makes it 'worth it' for them.. I sent you a DM on BP if you are able to assist.

$40K+ gain = I’d lean toward a 1031.

Under $20K = I’d probably just pay the taxes and move on unless it was rolling into a bigger portfolio play.

This is just my opinion and view on it, others might have different criteria for what makes it 'worth it' for them.. I sent you a DM on BP if you are able to assist.

Bill B. · Answer

I did my only one last year. As I swap out of properties I’ve owned 5-10 years and are getting to be a little too old to me, say built before 2000. It gets to be a pretty easy decision on anything you’ve owned almost 10 years with values tripling or quadrupling. I delayed more than $60k in taxes even though I live in a state with no state income tax or it could have been closer to $90k

My TOTAL additional cost was $700 give or take. That was all QI fees, nobody else cared. But let me explain another reason besides trading out old properties, depreciated properties, or switching property locations/types.

If I had moved in to that property and lived there 2 years I could have used sec 121 to avoid 2 years primary / out of 12 years total ownership, or 1/6th, call it $10k. If on the other hand I do a 1031 in to a nice new build property and a couple years later I decide it makes a bad rental. So I move in to it for 2 years. Now I permanently avoid 2/4yrs or 50% of that $60k I would have owed. Basically I saved $15k/yr for living there. After I sell my current primary 100% tax free.

I can’t see a reason not to do a 1031 even if like me you’re “winding down”. I’m still “cheap” enough that I’ll live in a new build for 2 years to save $30k in taxes. It’s just so easy and hassle free I don’t see the downside. But to each their own.

Basit Siddiqi · Answer

I think another thin to take into consideration is how much money you make.If you make $100,000, saving $10,000 in taxes will be valuable.If you make $500,000, savng $10,000 in taxes won't be as valuable.

Bill B. · Answer

@Marcus Auerbach post about getting out of a city proper brought up another thought. Doing a 1031 to get out of a state with state income tax in to a state without. Or a state that decides it hates landlords. You could be escaping Florida’s escalating insurance, or Texas’ property tax. The neighborhood is doing whatever the opposite of “up and coming” is. Or the it has “up and come” and your ROE is ridiculously low because the value’s have skyrockets. Maybe it’s time to try the USVI?  I THINK California is the only one that will chase you down for their cut of your eventual sale.

Marcus Auerbach · Answer

Yes, that makes sense. I would probably leave a State that is landlord-unfriendly faster than one with State income tax, as the potential pain inflicted by the legal system would trouble me more than reasonable taxes. Fortunately, an issue I don't have, so we optimize for max revenue with the lowest possible number of tenants. The trade-off in my case is lower ROE and lower CoC.

Bill Exeter · Answer

I agree with @Ricardo R.  The individual needs to decide what is right for them, but Ricardo did an excellent job of summing it up.

Exchange fees have changed quite a bit over the least couple of years.  Fees are usually $1,000 to $1,500.00.  Be careful that you are not being penny wise and pound foolish as cheaper providers do not have the safeguards necessary to protect your funds.

There are very few qualified intermediaries that have any kind of regulatory oversight.

Henry Clark · Answer

OP.  Just a different perspective.  Would never do a 1031.

We did a reverse 1031.  Cost more but it reduces the “timing” stress.  A land auction was coming up so we planned to buy at that.  Then sale a piece of land, which we could control the timing and also takes out the issue of finding the replacement property under a timetable.

Problem with a Reverse 1031, you have to cover the full cash position until your property is sold.  But we have great bank relationships with interest only so no issue.

You can’t take profit off the table through the sale since your purchase has to be higher than the sale.  Or if lower the difference is 100% taxed as profit.  Can always wait after the transaction and take a refi to take cash out if you have enough LTV. We do more development than outright purchases of existing structures.   Speed and flexibility are more important than tax deferral or using Uncle Sam for a loan.  Our gains are so high in development these benefits don’t come close.

If I was only ever doing just one property at a time and scale just thru that one asset I might use 1031.

Make sure you have all of your documents pulled together and locked away for when you exit the 1031 years later.

Marcus Auerbach · Answer

My gut feeling is 6 figures or at least close to. I have done a few 1031s to systematically upgrade the bottom end of our portfolio and get out of Milwaukee proper. What I find is that I end up paying a little more on the purchase side. It's hard to put a number on it, but could be 5% or so.

We just sold one for 224k and bought a property for 325k, which needs some upgrades. It was a good deal, but not a great deal. However, the suburb is very desirable and I was getting closer to the deadline and just accepted their counter, I think normally I would have negotiated a bit harder.

Basit Siddiqi · Answer

I see the cost of a 1031 exchange being around $750 to $1,000 for a straight one for one exchagne. If there is more than a one for one property exchange, there is normally an additional cost of about $250.I wouldn't consider doing a 1031 exchange unless the tax savings is $8,000+Another thing to consider is that sometimes, it may be best to let a 1031 exchagne fail if you are not getting a good deal on the purchase. If you are overpaying on the purchase by $8,000, it wipes out the tax savings that you would get.The last thing to consider is that if you have a property with a low mortgage rate and buying now with a higher rate, the future deal is less likely to be as good of an investment.

Bill B. · Answer

Ps. After hitting post I went for a walk and the first and only thing I thought of the entire way…

Too bad I didn’t know ahead of time or figure out sooner that it would make a bad LTR. I could have tried a furnished STR or MTR the last 6-12 months. Filled the house with high end beds/furniture/linens/kitchen appliances and so on. Then if that didn’t work out I could just sell/donate everything in my primary and move straight in. Live and learn.

What’s the Minimum Amount Where a 1031 Exchange Makes Sense?

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