Planning brief
Before the Sale: Five Numbers That Shape the Exchange
The most useful exchange planning often happens before the Qualified Intermediary prepares a document. Start with five numbers that reveal the real constraints on the reinvestment plan.
1. Adjusted basis
Sale price is visible. Adjusted basis is where the tax story begins. The working figure generally starts with original cost, then reflects capital improvements, depreciation, and other basis adjustments. That history helps estimate realized gain and the basis that may carry into replacement property.
Do not wait for the closing statement to reconstruct it. Gather the purchase closing file, depreciation schedules, improvement records, and prior exchange documents early enough for your tax advisor to review them.
2. Estimated realized gain
A 1031 exchange may defer eligible gain; it does not erase the gain. A practical estimate compares the amount realized on the disposition with adjusted basis and considers exchange expenses. The result gives the team a clearer view of what is at stake if the exchange is completed, partially completed, or not completed.
This estimate should remain separate from a broker's projected net sheet. Both are useful, but they answer different questions.
3. Debt payoff and 4. net equity
Debt relief and cash proceeds influence the economics of a fully deferred exchange. Review the current loan payoff, expected sale expenses, and the equity expected to reach the Qualified Intermediary. Then model how much of that equity is intended for the replacement closing.
A lender's timing belongs in this review too. If replacement financing is uncertain, the problem is not merely a closing problem—it can narrow the set of realistic properties long before Day 45.
5. Replacement-property range
Translate the tax and financing estimates into an acquisition range before the relinquished sale closes. The range should account for property value, new debt, available equity, reserves, and the possibility of acquiring more than one asset.
This is not a directive to buy the largest possible property. It is a decision frame: what outcome is the owner trying to protect, what tradeoffs are acceptable, and what would make a taxable alternative preferable? Brandon helps organize those questions while Qualified Intermediary execution is coordinated through i1031.