1031 Exchange in Delaware

By Skyline Capital Investments · Updated October 26, 2026 · 7 min read

Does Delaware recognize 1031 exchanges?

Yes. A Delaware 1031 exchange works the same way it does federally, because Delaware taxable income for a resident starts from federal adjusted gross income under 30 Del. C. section 1105. Gain you defer under Section 1031 never reaches federal AGI, so Delaware never taxes it in the year of the exchange.

The payoff is easy to size. Delaware’s top rate of 6.6% starts at $60,000 of taxable income, so on an apartment sale nearly every dollar of gain would otherwise be taxed at 6.6%. On a $1,000,000 gain that is $66,000 of Delaware tax deferred, on top of the federal tax.

Federal 1031 rules that apply in Delaware

Delaware adds no deadlines of its own. You have 45 days from the sale to identify replacement property in writing and 180 days, or your return due date if earlier, to close on it. Both properties must be real property held for investment or business use, and a qualified intermediary must hold the proceeds so you never receive them.

To defer all of the gain, buy a replacement of equal or greater value and reinvest all the net cash. Cash you keep, or debt you shed without replacing, is boot, taxed by both the IRS and Delaware. Our guide to 1031 exchange rules covers identification and boot in detail, and the complete 1031 exchange guide explains the process end to end.

Delaware withholding at closing and how an exchange affects it

A nonresident who sells Delaware real estate must file a declaration with the county Recorder of Deeds, and pay estimated tax, before the deed can be recorded. Under 30 Del. C. section 1126(b), the estimate is the top rate, 6.6%, on the estimated recognized gain. The Division of Revenue’s Form REW-EST instructions put C corporations at 8.7% of the gain and all other sellers at 6.6%.

An exchange changes the base. The statute lets the seller file a form claiming that the sale is exempt from gain recognition, or that part of the gain is excludable, with a statement of facts and a citation to the Internal Revenue Code. In an exchange, you cite Section 1031 and pay the estimate only on the gain you recognize, which is the boot. A nonresident who reinvests everything usually pays nothing at recording.

• Tell the closing attorney early that the sale is part of an exchange and send the intermediary’s details and the exchange agreement.
• Delaware residents certify residency on the form and pay nothing at recording.
• The estimate is a credit on your Delaware nonresident return. Any boot is still taxed when you file.

The realty transfer tax is not deferred

The Delaware realty transfer tax applies to the deed, not the gain, so a 1031 exchange does nothing to it. Under 30 Del. C. section 5402, the state rate is 3%, or 2.5% where the county or town has adopted the full 1.5% local tax, for 4% combined. The statute splits it equally between seller and buyer, though section 5412 puts all of it on the seller if the contract is silent.

In an exchange, that means you pay your share when you sell the relinquished property, and if the replacement is in Delaware, you pay the buyer’s share on that deed as well. A Delaware-to-Delaware exchange of a $2,000,000 building for a $2,050,000 building costs about $40,000 on the sale and $41,000 on the purchase at a 50/50 split.

Moving the building into or out of an entity can be taxed too. Section 5401(8) treats a change in beneficial ownership through entity interests as a taxable transfer, unless the same owners keep at least 80% of the interest. Check with your attorney before you restructure title around an exchange.

Does Delaware have a 1031 clawback?

No. Delaware has no clawback or tracking rule. If you exchange a Delaware building for one in Maryland, Pennsylvania or Florida, you file no annual Delaware form to track the deferred gain.

That is different from the four states that do track deferred gain: California, Massachusetts, Montana and Oregon. If you are coming into Delaware from one of those states, you may still owe filings to the state you left.

When the deferred Delaware tax comes due

A 1031 exchange postpones tax; it does not erase it. The deferred gain carries over into the replacement through a lower basis, and it is taxed when you sell the replacement in a taxable sale. Who taxes it then depends on where you live and where the replacement is.

If you stay a Delaware resident, Delaware taxes your whole federal AGI, so the deferred gain is taxed by Delaware when you sell, wherever the replacement sits. If you are a nonresident and the replacement is outside Delaware, the gain on that later sale is not Delaware-source income under section 1124, because Delaware sources gain from real property to where the property is located.

That is why the lack of a clawback matters most to owners who plan to leave the state or who already live elsewhere. A nonresident who swaps a Delaware building for one in their home state moves the future gain out of Delaware’s reach. A resident gets the same deferral but not that shift. Holding the replacement until death adds a stepped-up basis for heirs, which can end the deferred tax entirely.

Does Delaware regulate qualified intermediaries?

No. Delaware is not one of the nine states with a law regulating exchange intermediaries; those are California, Colorado, Connecticut, Idaho, Maine, Nevada, Oregon, Virginia and Washington. A Delaware intermediary does not need a state license, a fidelity bond or a segregated account by statute.

That puts the checking on you. Before you sign, ask how your funds will be held, whether in a separate account in your name or a pooled one, who must sign to move money, what fidelity bond and errors and omissions coverage the firm carries, and whether you get statements. The intermediary cannot be your agent from the past two years, such as your attorney, CPA or broker. Our guide to choosing a 1031 qualified intermediary sets out what to ask.

Common 1031 exchange paths for Delaware owners

Most Delaware exchanges follow one of three paths, and the transfer tax weighs on each differently.

Delaware to Delaware is common for owners trading a group of small Wilmington buildings for one larger property in Newark or Dover. There is no state filing beyond the recording form, but the 4% transfer tax applies on both deeds.

Delaware to a neighboring state, often Maryland or Pennsylvania, avoids the Delaware transfer tax on the purchase but brings that state’s own transfer and recording taxes. Price both before you choose a market.

Out of state into Delaware brings no Delaware clawback filing. You pay the buyer’s share of Delaware’s transfer tax on the replacement deed, and later gain on the Delaware property is Delaware-source income.

Worked example: a nonresident’s Delaware exchange

An owner living in Pennsylvania sells an 18-unit building in Newark for $2,000,000. Selling costs are $100,000, including a $40,000 half share of the 4% transfer tax, and the adjusted basis is $800,000, so the gain is $1,100,000. The $700,000 loan is paid off, the owner takes $100,000 in cash at closing, and the intermediary receives the other $1,100,000.

The owner buys a $2,050,000 building in Lancaster, Pennsylvania, with the $1,100,000 of exchange funds and a new $950,000 loan. The $100,000 of cash is boot, so $100,000 of gain is recognized and $1,000,000 is deferred. At 6.6%, the Delaware tax on the boot is $6,600 and the Delaware tax deferred is $66,000.

At recording, the owner files the exemption form citing Section 1031 and pays the estimate only on the recognized gain: 6.6% of $100,000, or $6,600. Without the exchange, the estimate would have been 6.6% of the full $1,100,000, or $72,600. Because the replacement is in Pennsylvania, Delaware requires no further filing after the nonresident return for the year of sale.

Timeline tips for a Delaware exchange

Build the Delaware paperwork into the first week, not the closing table.

• Sign the exchange agreement and assign the sale contract before closing.
• Settle the transfer tax split in the purchase contract, since the default puts it all on the seller.
• Have the closing attorney prepare the nonresident recording form with the Section 1031 citation in advance.
• If you sell late in the year, file an extension so your return due date does not cut the 180 days short.
• Keep a separate Delaware depreciation schedule on a replacement bought from 2026, since Delaware does not follow federal 100% bonus depreciation for property placed in service from 2026 through 2030.

Selling a Delaware apartment building as part of an exchange

Skyline buys apartment buildings with five or more units in Delaware. We buy directly, close on your timeline, and can work inside 1031 deadlines. We work with your intermediary on the contract assignment, agree the transfer tax split up front and can set a closing date that leaves time to find a replacement before your 45 days start.

For the tax you would owe without an exchange, see Delaware capital gains tax on real estate. The 1031 exchange calculator runs the federal side with your own numbers.