1031 Exchange in New Jersey: A Plain-English Guide.

A 1031 exchange in New Jersey follows the federal Section 1031 framework. New Jersey conforms to federal 1031 for income tax purposes, but it adds a wrinkle that catches many investors off-guard: the New Jersey “exit tax,” which is actually a withholding obligation on nonresident sellers of New Jersey real estate. Even when a sale qualifies as a 1031 exchange, the closing agent withholds unless the right exemption form is filed.

Last updated: June 2026 · For New Jersey-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.

New Jersey’s tax interaction with Federal 1031.

New Jersey imposes a state personal income tax of up to 10.75% (top marginal rate). Capital gains are taxed as ordinary income. New Jersey conforms to federal Section 1031, so a properly structured 1031 exchange defers New Jersey state tax in addition to federal tax.

The New Jersey “exit tax” is not actually a tax. It is a withholding mechanism for nonresident sellers of New Jersey real estate, codified at N.J.S.A. 54A:8-9. At closing, the closing agent is required to withhold the greater of (a) 2% of the consideration paid, or (b) 8.97% of the gain on the sale, unless the seller files the appropriate exemption form. For 1031 exchanges, the seller must file Form GIT/REP-3 (Seller’s Residency Certification/Exemption) with the closing agent to claim exemption from the withholding. Without that form, the withholding occurs even when the 1031 itself qualifies for federal deferral.

Practical implication. A 1031 exchange of New Jersey real estate by a nonresident, or by an LLC or other entity treated as nonresident, requires careful coordination with the closing agent and your CPA on the GIT/REP forms. Talk to your QI and closing attorney early about which form applies to your specific facts. Residents typically use GIT/REP-3 with the relevant 1031 exemption box; nonresidents may need different forms depending on entity structure.

New Jersey also imposes a realty transfer fee at closing, graduated by sale price up to roughly 1.21% on transactions above $1 million. The realty transfer fee is a transfer tax, not an income tax, and applies regardless of 1031 status.

Qualified Intermediary notes for New Jersey investors.

New Jersey does not impose a state-specific QI licensing regime, but the closing process in New Jersey is attorney-driven. Use a QI with proven New Jersey transaction experience and direct relationships with New Jersey closing attorneys.

The GIT/REP process is the single biggest place a New Jersey exchange goes wrong. A QI who does not understand it should not handle your New Jersey exchange.

Common questions from New Jersey investors.

Where New Jersey investors find replacement property.

New Jersey investors often look to Pennsylvania (adjacent, lower transfer cost), Florida, North Carolina, South Carolina, and Texas for replacement property. The Sunbelt destinations carry lower property tax burdens and stronger demographic tailwinds than coastal New Jersey markets.

DSTs holding institutional-grade Sunbelt and Mid-Atlantic property are common replacement vehicles for New Jersey investors who want passive ownership and full diversification away from New Jersey-specific filing complexity. Confirm GIT/REP filings are handled correctly on the relinquished-property closing.

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.