1031 Exchange in Massachusetts: A Guide for Investors.

A 1031 exchange in Massachusetts follows the federal Section 1031 framework. The IRS gives you 45 days to identify a replacement property and 180 days to close, and all sale proceeds must be routed through a Qualified Intermediary. Massachusetts conforms to federal 1031 and imposes a flat 5% income tax rate, with an additional 4% surtax (the “Fair Share Amendment,” often called the millionaire’s tax) on income over $1 million in a given year. For high-net-worth Massachusetts sellers, that surtax makes deferral particularly valuable.

Last updated: June 2026 · For Massachusetts-resident accredited investors

The federal rules in 60 seconds.

A 1031 exchange lets you sell investment real estate and reinvest the proceeds into like-kind replacement property while deferring federal capital gains tax. Two firm deadlines apply: Day 45 to identify replacement property in writing to your Qualified Intermediary, and Day 180 to close on it.

Your sale proceeds must go to the QI, not to you. Taking constructive receipt blows up the exchange. For the complete federal framework, see our 1031 Exchange Guide.

Massachusetts’s tax interaction with Federal 1031.

Massachusetts imposes a flat 5% state personal income tax on most income, including long-term capital gains from real estate. The state conforms to federal Section 1031, so a properly structured 1031 exchange defers both federal and Massachusetts state income tax on the gain.

The 4% surtax on income above $1 million per year, approved by voters in 2022 and effective beginning tax year 2023, is the bigger story for high-net-worth Massachusetts investors. A large appreciated property sold without 1031 deferral can push a Massachusetts taxpayer’s total Massachusetts taxable income above the $1 million threshold and trigger the surtax on the excess. A 1031 exchange that defers the gain also defers the surtax exposure. For sellers of properties with gains in the seven figures, this is a material planning consideration.

Massachusetts has its own “safe harbor” guidance for like-kind exchanges that largely mirrors the federal framework. There is no Massachusetts-specific clawback or annual reporting requirement comparable to California’s FTB 3840. Once the federal 1031 is properly executed, Massachusetts respects the deferral without additional state filings.

Practical implication. Massachusetts also imposes a deeds excise tax (transfer tax) of $4.56 per $1,000 of consideration on most real estate transfers, with slightly higher rates in Barnstable, Dukes, and Nantucket counties due to community preservation surcharges. The deeds excise is a transfer tax, not an income tax, and applies regardless of 1031 treatment.

Qualified Intermediary notes for Massachusetts investors.

Massachusetts does not impose a state-specific QI licensing regime. National QIs serving the broader market are available to Massachusetts investors. The standard diligence questions apply:

Massachusetts closings are typically handled by attorneys. Use a QI with established Massachusetts closing-attorney relationships, particularly for Boston-metro transactions where condo trusts, registered land, and complex title issues are common.

Common questions from Massachusetts investors.

Where Massachusetts investors find replacement property.

Massachusetts investors often look to New Hampshire (no state income tax on capital gains, geographically adjacent), Florida, North Carolina, South Carolina, and Texas. The Sunbelt destinations carry lower property tax burdens and stronger demographic tailwinds than Greater Boston.

DSTs holding institutional-grade Sunbelt and Mid-Atlantic property are common replacement vehicles for Massachusetts investors who want passive ownership and diversification, particularly for sellers whose gain would otherwise expose them to the 4% millionaire’s surtax.

For more on how DSTs work as 1031 replacement property, see our DSTs Explained guide. For evaluating the sponsor of any DST you consider, including the framework we apply to our own offerings, see our Sponsor Evaluation Framework.