1031 Exchange in Pennsylvania: A Guide for Investors.

A 1031 exchange in Pennsylvania follows the federal Section 1031 framework, with one critical caveat: Pennsylvania only began recognizing 1031 deferral for individuals starting with tax years beginning after December 31, 2022. Before that, a 1031 deferred federal tax but Pennsylvania immediately taxed the gain. The 2022 change (Act 53 of 2022) is recent and material. Many Pennsylvania investors and advisors still operate on the old assumption.

Last updated: June 2026 · For Pennsylvania-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.

Pennsylvania’s tax interaction with Federal 1031.

Pennsylvania imposes a flat 3.07% state personal income tax. Historically, Pennsylvania did not conform to federal Section 1031 for individual income tax purposes. A 1031 that deferred federal capital gains tax did not defer Pennsylvania tax, and the seller owed Pennsylvania tax on the full gain in the year of sale even though no cash was received.

This changed under Act 53 of 2022, which amended the Pennsylvania Tax Reform Code to conform to federal Section 1031 for tax years beginning after December 31, 2022. For tax year 2023 and forward, a properly structured 1031 exchange now defers Pennsylvania state tax along with federal tax. This is a significant improvement for Pennsylvania investors and one of the most important recent state-level changes in 1031 practice.

Practical implication. Pennsylvania investors who held off on 1031s pre-2023 due to the immediate state-tax bite now have a much cleaner path. Confirm with your CPA that the new conformity applies to your specific facts (entity structure, residency timing) and that the 2023+ tax year frames your transaction.

Pennsylvania also imposes a realty transfer tax of 1% at the state level, with most municipalities and school districts adding an additional 1% for a typical combined rate of 2%. Philadelphia adds a higher municipal rate. Realty transfer tax is a transfer tax, not an income tax, and applies regardless of 1031 treatment.

Qualified Intermediary notes for Pennsylvania investors.

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

A QI that is still operating on pre-2023 assumptions, or that confuses you about Pennsylvania state treatment, is a red flag. Pennsylvania investors should also confirm coordination with the local recorder of deeds and the realty transfer tax payment process on both legs of the exchange.

Common questions from Pennsylvania investors.

Where Pennsylvania investors find replacement property.

Pennsylvania investors look to adjacent states (Ohio, New Jersey, Maryland) and to Sunbelt markets (North Carolina, South Carolina, Florida, Texas). The 2023 conformity change has unlocked 1031 strategies that were previously uneconomic for Pennsylvania residents.

DSTs holding institutional-grade Mid-Atlantic and Sunbelt property are common replacement vehicles for Pennsylvania investors, especially given the recent unlock of state-level deferral. Sellers who held appreciated property through the pre-2023 era now have a viable path to passive replacement without the state tax bite that previously made the structure uneconomic.

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.