How the estimate is calculated
The gain on a sale is the amount realized (sale price minus selling costs) less the adjusted basis (purchase price plus capital improvements minus depreciation taken). Federal law taxes the part of the gain attributable to straight-line depreciation on real property as unrecaptured Section 1250 gain at a maximum rate of 25 percent, and the remainder as long-term capital gain at 0, 15, or 20 percent depending on taxable income. The 3.8 percent net investment income tax applies to investors above the income thresholds. New Mexico taxes the gain as ordinary income at its graduated rates, with a general capital gains deduction limited to $2,500 beginning in tax year 2025.
A completed 1031 exchange defers all of these taxes by carrying the gain and the old basis into the replacement property. The deferral requires buying property of equal or greater value, reinvesting all net equity, and replacing the debt paid off at closing; anything short of that is boot and is taxed to the extent of the gain. Our complete 1031 guide covers the rules, and the deadline calculator gives you the 45-day and 180-day dates.
What this estimator does not do
- It applies a single federal rate and a single New Mexico rate. Actual tax depends on your full return: brackets, other income, suspended passive losses, the alternative minimum tax, and state credits.
- It treats all depreciation as Section 1250 recapture at 25 percent. Personal property components identified in a cost segregation study are Section 1245 property recaptured at ordinary rates, which can be higher.
- It assumes an individual or pass-through owner. C corporations, trusts, and nonresident owners face different rules and withholding.
- It does not model installment sales, partial exchanges, or the basis step-up at death that ends the deferral for heirs.
Use the result to decide whether an exchange is worth planning, then have your CPA run the real numbers before you list the property. Deferral only works if the exchange is set up before the sale closes.
