Federal and State Tax Exemptions
Real estate investors seeking our assistance often ask whether they can use a 1031 exchange when selling a property in one state and purchasing another in a different state. In short, moving markets is typically not a problem when it comes to 1031 exchanges, since 1031 exchange rules are in a federal tax code that is recognized in all states. Exchanging a relinquished property in one state with a replacement property in another is known as a “state-to-state 1031 exchange.”
It is important to note, however, that crossing state lines with a 1031 exchange requires an understanding of state-level tax rules and regulations. While most state allow investors to defer state taxes with 1031 exchanges, there can be state regulations to consider:
- Claw back provisions: Some states require that any gain in property value accrued through a taxable sale is subject to state taxes. An experienced 1031 exchange professional understands the laws of each state as they apply to 1031 transactions and can provide guidance.
- Residence and withholding: Some states have non-resident mandatory withholding requirements for investors selling property they own out of state. However, tax exemptions may be available with the help of a knowledgeable professional who can submit the proper forms on behalf of the investor.
A state-to-state 1031 exchange can be an effective tax-deferral strategy with skilled professional guidance. Investors looking to set up a state-to-state 1031 exchange can count on our 1031 Federal Exchange team to understand tax regulations involving residency and properties. Contact our experienced qualified intermediaries by calling us at 513-488-1135 or inquiring online. Our highly qualified professionals help clients facilitate state-to-state 1031 exchanges nationwide.