Deferred gain is MUCH less than recognized gain, why

[Stanley She]

I bought a rental property 7 years ago for $198000. Last year, I sold it for $400000. For the sake of simple discussion, let me ignore all purchasing and selling costs. So, my gain is 202000. Within one month of the sales, I purchased a like-type property at $265000. I would think that all my gain of 202000 is ALL used up in the new purchase... not only that, I have further invested more in order to purchase the new property.  By that, my recognized gain should be 0, and all 202000 should be deferred gain. 

But, the tax software is telling me: my recognized gain is 400000 - 265000 = 135000! The deferred gain is only 65000. 

Which is correct, mine or the software? 

Anyone can enlighten me? Much appreciated in advance.

Stanley

[Conner Jackson]

@Stanley She Unfortunately, your software appears to be correct. It's a common misconception that you only need to reinvest your profit to defer your gains in a 1031. But in order to get a complete tax deferral, you need to purchase replacement property(s) that are valued equal or greater compared to the net sale price of your relinquished property (sale price minus allowable closing costs). You won't begin to defer any capital gains tax until you've reinvested at least your basis ($198,000) from your relinquished property into a new property.

I wish I had better news, but hopefully this is helpful.

Conner