1031
Exchange
Sell an investment property and roll the proceeds into another, deferring capital-gains tax and depreciation recapture. Here are the two deadlines that govern every exchange, and an estimate of what you'd defer.
A 1031 exchange (IRS Section 1031) lets a real-estate investor defer the tax due on a sale by reinvesting into a like-kind investment property. The tax isn't erased, it rolls into the basis of the new property, but deferring it keeps far more of your equity working. Two strict clocks start the day your sale closes.
Your two deadlines
Enter the day your sale (the relinquished property) closes. Both clocks run on calendar days and don't extend for weekends or holidays.
A Qualified Intermediary (QI) must hold the sale proceeds, if the cash touches your hands, the exchange fails. Line these dates up before you list. We can introduce you to a QI we trust.
Estimate the tax you'd defer
A rough sense of the federal + NJ tax a successful exchange would push down the road instead of paying now.
Estimate only, not tax or legal advice. Actual liability depends on your bracket, holding period, prior losses, and state specifics; a 1031 exchange must be structured with a Qualified Intermediary and reviewed by your CPA. Rates above are editable.
The core rules
- Like-kind, investment use. Both properties must be held for investment or business use, your primary home doesn't qualify.
- Same taxpayer. The title holder who sells must be the one who buys the replacement.
- Equal or greater. To defer all tax, buy replacement(s) of equal or greater value and reinvest all the equity (and replace the debt).
- Qualified Intermediary required. A QI must hold the proceeds between the sale and purchase, you can't take the cash.
- 45 / 180 days. Identify in 45 days, close in 180, both from the sale closing, no extensions.
New Jersey 1031 Exchange
New Jersey conforms to IRC Section 1031 for real property. A properly structured exchange defers both the federal gain and the New Jersey state income tax on the same gain. Three NJ-specific points every investor should know before closing.
- NJ follows federal 1031 rules. The state treats a qualifying exchange the same way the IRS does: the gain is deferred, not recognized, and the tax basis carries forward into the replacement property.
- The NJ nonresident withholding is generally not triggered on a qualifying exchange. New Jersey requires out-of-state sellers to prepay a portion of estimated state income tax at closing. When the sale qualifies as a valid 1031 exchange, that withholding obligation is generally not triggered on the exchanged gain, because the gain is being deferred rather than recognized. Your CPA and settlement attorney should confirm this applies to your specific transaction.
- The Qualified Intermediary must be engaged before closing. Under both federal and New Jersey practice, the QI agreement must be in place and signed before the relinquished property closes. Attempting to arrange the QI after closing disqualifies the exchange. Start the QI engagement process well before you go under contract on your sale.
This is general information about how New Jersey conforms to federal 1031 rules, not tax or legal advice. Each transaction has unique facts. Work with a CPA licensed in New Jersey and a real estate attorney before structuring your exchange.
Frequently asked questions
Does the New Jersey exit tax apply to a 1031 exchange?
New Jersey requires sellers who are not NJ residents to prepay a portion of estimated state income tax at closing. However, when a sale qualifies as a valid 1031 exchange, this nonresident withholding is generally not triggered on the exchanged gain, because the gain is being deferred, not recognized. Consult a CPA familiar with NJ real estate transactions to confirm your specific situation.
When must I hire a Qualified Intermediary for a New Jersey 1031 exchange?
The Qualified Intermediary must be formally engaged and the exchange agreement signed before the closing on the relinquished property. In New Jersey, as under federal law, if you close first and then attempt to arrange a QI, the exchange fails. Plan this step weeks ahead of your listing going under contract.
Can I do a 1031 exchange in New Jersey?
Yes. New Jersey conforms to the federal 1031 rules, so a properly structured exchange defers both federal capital-gains tax and New Jersey state income tax on the gain. A Qualified Intermediary must hold the proceeds; you cannot take possession of the cash.
Thinking about an exchange?
Timing is everything with a 1031, the deadlines start the day you close. We'll help you line up the replacement search and a Qualified Intermediary before you list.
Talk Through Your Exchange →