1031 Exchange by State: A Plain-English Investor Guide.
A 1031 exchange follows the same federal rules in every state: 45 days to identify, 180 days to close, Qualified Intermediary required. What changes is what your state does on top of the federal framework. The 10 guides below cover the state-specific tax, transfer-fee, and source-rule interactions that matter most.
Most states conform to federal Section 1031. A properly structured 1031 defers both federal and state income tax on the gain in those states. The exceptions are where the planning gets material.
California’s clawback rule requires annual Form FTB 3840 filings when you 1031 California-source gains into out-of-state property, and the deferred gain remains California-taxable when eventually recognized, even if you have moved out of state. New Jersey withholds an “exit tax” at closing unless you file Form GIT/REP-3 before the sale. Pennsylvania only began recognizing federal 1031 for individuals in tax years beginning after December 31, 2022 under Act 53 of 2022, a change most Pennsylvania CPAs are still adjusting to. New York taxes nonresidents on New York-source gains under Tax Law §631, meaning the gain on a Manhattan rental stays New York-source even after you move to Florida.
Each state page below walks through how the state interacts with federal 1031, the Qualified Intermediary considerations specific to that state, the most common questions investors in that state ask, and where investors in that state typically look for replacement property. State tax rules change. Confirm specifics with your CPA before any transaction.
1031 Exchange in California.
The FTB 3840 clawback rule, how the gain stays California-source even after you move, and what high state tax (13.3%) means for the value of the deferral. Plus Prop 13 interaction and the California Exchange Facilitator Act on QIs.
Read the guide1031 Exchange in Florida.
No state income tax, but documentary stamps (0.70 per $100, higher in Miami-Dade), Save Our Homes property tax dynamics, and what a 1031 doesn’t avoid still matter. Florida is a common destination state for out-of-state 1031 capital.
Read the guide1031 Exchange in Illinois.
The 4.95% flat state rate, Cook County triennial reassessment, and Chicago’s $5.25 per $500 real property transfer tax. Modest state deferral benefit, big in-state Chicago metro replacement market.
Read the guide1031 Exchange in Massachusetts.
The 5% flat rate plus the 4% Fair Share millionaire’s surtax (effective 2023) on income over $1 million. For high-net-worth sellers whose gain would cross the threshold, a 1031 defers the surtax exposure as well as the base tax.
Read the guide1031 Exchange in New Jersey.
The New Jersey “exit tax” isn’t a tax, it’s a closing-time withholding mechanism. Form GIT/REP-3 prevents it. Without that form filed before closing, the withholding occurs even when the 1031 itself qualifies for federal deferral.
Read the guide1031 Exchange in New York.
The Tax Law §631 source rule that follows the gain even after you move out of state, NYC’s RPTT (up to 2.625%), and the mansion tax (up to 3.9%). A 1031 defers income tax but not the layered NY transfer taxes.
Read the guide1031 Exchange in North Carolina.
Declining flat state tax (~4.5%) with scheduled further reductions, the county-level real estate excise tax, and North Carolina’s dual identity as both a source state and a destination state for 1031 capital.
Read the guide1031 Exchange in Ohio.
Graduated state income tax (top ~3.5%) plus the municipal income tax variations in Cleveland, Columbus, Cincinnati, and Toledo. Local tax treatment of capital gains is not uniform across Ohio cities, and federal 1031 deferral does not always flow through.
Read the guide1031 Exchange in Pennsylvania.
Act 53 of 2022 is the story. Pennsylvania only began recognizing federal 1031 for individuals in tax years beginning after December 31, 2022. Most Pennsylvania CPAs are still operating on the pre-2023 assumption that Pennsylvania immediately taxes the gain.
Read the guide1031 Exchange in Texas.
No state income tax, so federal deferral is the entire tax-deferral story. The Texas franchise tax interaction for new holding entities and the high in-state property tax (with no Prop 13-style cap on non-homestead) are the planning inputs that actually drive returns.
Read the guideDon’t see your state? The 10 guides above cover the states where the federal-state interaction matters most. Other states (Georgia, Virginia, Maryland, Washington, Colorado, Arizona, Tennessee, Connecticut, Minnesota, Hawaii) are in queue. In the meantime, talk to a specialist who can walk through your specific state’s rules.
Next: choose your replacement property.
Federal and state rules tell you what you can do. The replacement property tells you what you actually buy. Start with DSTs Explained for the structure and trade-offs of Delaware Statutory Trusts as 1031 replacement, then use the Sponsor Evaluation Framework to run any sponsor (including us) through the three tests every investor should apply.
If you have a sale closing date already, the fastest move is the 1031 Deadline Calculator. Enter your closing date and see your Day 45 and Day 180 immediately.
Have a state-specific 1031 question? Talk to a specialist.
State tax interactions are where 1031 planning gets unforgiving. A 20-minute conversation with a registered representative who understands your state’s rules can surface answers a written guide cannot.