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Drop and Swap Calculator

When a partnership wants to sell but LPs disagree on whether to 1031 into a replacement, the solution is 'drop and swap' — distribute tenant-in-common interests before sale so each LP can do their own 1031 separately. This calculator sizes the tax savings across dropping LPs and compares to legal/accounting cost.

Property value

Number of LPs

% of LPs dropping out

Deferred gain per dropping LP

Capital gain tax rate

Drop-and-swap legal + accounting

Net tax savings after legal cost

$140,000

Total capital gain tax deferred

$175,000

Total deferred gain

$700,000

LPs taking individual 1031 paths

LPs continuing in replacement

How the math works

Drop and swap: before sale, the partnership distributes undivided interests to individual LPs (the 'drop'). Each LP can then do their own 1031 exchange on their portion (the 'swap'). Lets partners disagree on replacement property while preserving 1031 deferral for those who want it.

IRS has historically scrutinized drop-and-swaps for 'held for investment' purpose — dropping too close to closing can invalidate the 1031. Best practice: drop at least 2 years before sale. Also called 'swap and drop' or the opposite structure.

Editorial noteMaintained by EveryCalc - Reviewed June 2026

EveryCalc calculators are designed for fast, practical estimates with transparent inputs and no required account. We use plain formulas, visible assumptions, and related tools so visitors can check the result from more than one angle.

Results are informational only. For financial, tax, legal, medical, construction, or other high-impact decisions, verify the output against primary sources or a qualified professional.

Learn more about our review process on the EveryCalc methodology page.

How this calculator works

What this page estimates

This Drop and Swap Calculator is built to give a quick, browser-based estimate for drop and swap. When a partnership wants to sell but LPs disagree on whether to 1031 into a replacement, the solution is 'drop and swap' — distribute tenant-in-common interests before sale so each LP can do their own 1031 separately. This calculator sizes the tax savings across dropping LPs and compares to legal/accounting cost. The inputs stay on the page during normal use, and the result should be treated as an estimate for planning, comparison, or education rather than professional advice.

Calculation approach

The calculator applies the standard relationship implied by the inputs, then formats the answer so it can be checked and reused. For finance tools, the most important step is using consistent units, rates, time periods, and assumptions before comparing the result with another calculator or outside quote.

Example workflow

For example, start with a realistic value you already know, change one input at a time, and watch how the answer moves. That makes it easier to tell whether the result is being driven by the main amount, the rate, the time period, or a unit conversion.

Practical checks

Use current, real-world numbers when the result affects money, health, tax, or legal decisions.
Run a low, base, and high case when the inputs are estimates.
Check the related calculators below when the next decision depends on a different assumption.

How to interpret the drop and swap result

Best use

Use the result as a planning number for comparing payments, rates, returns, tax reserves, or cash-flow choices before you request a quote or make a commitment.

Cross-check

Compare the answer with the contract, lender estimate, tax form, brokerage statement, payroll record, or invoice that will control the real-world outcome.

Watch for

Do not rely on a single optimistic rate, return, or fee assumption. Money pages work best when you run low, base, and high cases and keep professional advice separate from the estimate.

This page belongs to the Finance calculator library, so the answer should be read in the context of the decision you are modeling rather than as a universal rule.

Before relying on this drop and swap estimate

Most calculator mistakes come from the inputs, not the arithmetic. Use this short audit before you reuse the answer in a spreadsheet, quote, application, or important conversation.

Confirm source numbers

Match balances, rates, fees, taxes, income, and payment dates against the lender quote, payroll record, tax form, statement, invoice, or contract.

Separate cash flow from total cost

A lower monthly payment can still cost more over time if fees, interest, taxes, or a longer term are hidden in the structure.

Run conservative cases

Test at least one higher-cost or lower-return case before using the output for a purchase, refinance, investment, loan, or tax decision.

Rerun this page when the rate, price, term, fee, tax rule, income, expense, or expected holding period changes.

How to Use

Enter property value and number of LPs.
Enter percentage of LPs taking individual 1031 paths.
Enter deferred gain per dropping LP and tax rate.
Enter legal/accounting cost.
Read net tax savings.

Frequently Asked Questions

Timing requirements?

IRS historically scrutinizes drops too close to sale. Conservative: drop 2+ years before sale. Aggressive: drop on day of sale. The more time between drop and swap, the stronger the 'held for investment' position.

Does the partnership still exist?

Yes — the remaining LPs continue the partnership, now holding fewer TIC interests. A partial dissolution. Legal and accounting fees handle the restructure.

State tax?

1031 is federal. Most states follow federal treatment, but some (CA, PA, NY, OR) have state-specific rules. Always confirm state treatment before relying on the savings.