1031 Exchange in Louisiana

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

Does Louisiana recognize 1031 exchanges?

Yes. A Louisiana 1031 exchange works the same way it does federally, because the Louisiana return starts from federal adjusted gross income. Gain you defer under Section 1031 never appears in federal adjusted gross income, so it never reaches the Louisiana return either.

The state tax being deferred is simple to figure. Since January 1, 2025, Louisiana taxes all individual income, including capital gains and depreciation recapture, at a flat 3% under Act 11 of the 2024 Third Extraordinary Session. On a $1,000,000 gain, an exchange defers $30,000 of Louisiana tax on top of the federal amount.

Federal 1031 rules that apply in Louisiana

Louisiana adds no deadlines, so the federal timeline controls. Count 45 days from the closing of the Louisiana sale to name your replacement property in writing, and 180 days, or your tax return due date if that comes first, to finish buying it. Both properties must be real property held for investment or for use in a business, and a qualified intermediary must hold the proceeds so you never have access to them.

To defer all the gain, buy a replacement of equal or greater value and reinvest all the net cash. Cash you keep, and debt paid off that you do not replace with new debt or added cash, is boot. Boot is taxed federally at the usual rates and by Louisiana at 3%. Our guide to 1031 exchange rules covers the identification tests and boot rules in full, and the complete 1031 exchange guide explains the process from start to finish.

Is the exchange worth it at a 3% state rate?

Usually yes, because the federal tax is the large piece. On a big apartment sale, federal tax can run to 20% on appreciation, 25% on straight-line depreciation and 3.8% net investment income tax, and Louisiana adds 3%. The exchange defers all of it.

The low state rate does change one comparison. Before 2025, Louisiana’s top rate was 4.25%, and before 2022 it was 6%. An owner who planned to sell outright someday now faces a smaller state bill than in the past, so the cost of simply selling has dropped a little. For most owners with large gains, the federal deferral still decides it.

Does Louisiana have a 1031 clawback?

No. Louisiana is not one of the four states, California, Massachusetts, Montana and Oregon, that track deferred gain after you exchange into property outside the state. There is no annual Louisiana filing for an out-of-state replacement.

That gives Louisiana owners room to move. Someone who exchanges a Lafayette building for one in Houston and later moves to Texas is generally taxed by Louisiana on income sourced to Louisiana, and the Houston building is not Louisiana property. If you remain a Louisiana resident, the state taxes your income from everywhere, so the eventual sale of the Texas building would be on your Louisiana return. Ask your CPA how your residency plans affect the deferred gain.

Withholding at closing on a Louisiana exchange

Ask your title company early what state paperwork applies to your sale, especially if you or your entity are based outside Louisiana. Nonresidents owe Louisiana tax on gain sourced to Louisiana and report it on Form IT-540B; in an exchange, only the boot is recognized, so the Louisiana gain shown on that return is limited to the boot.

Federal withholding can still apply. A foreign seller can still face FIRPTA withholding on a Louisiana closing, exchange or not, unless the IRS issues a certificate reducing it. Tell the title company and your intermediary at the start that the sale is part of an exchange, so the closing statement sends the proceeds to the intermediary and not to you.

Does Louisiana regulate qualified intermediaries?

No. Louisiana is not one of the nine states with a law regulating exchange intermediaries: California, Colorado, Connecticut, Idaho, Maine, Nevada, Oregon, Virginia and Washington. A Louisiana intermediary does not have to post a state bond or hold funds under state rules.

Federal rules still decide who can serve. Anyone who worked as your agent during the two years before the exchange, including your lawyer, CPA, broker or an employee, is disqualified from acting as intermediary. Since the state does not set protections, you have to ask for them in the exchange agreement.

• A fidelity bond and errors and omissions coverage, shown to you in writing.
• Your funds in a segregated account in your name, or a qualified escrow, rather than a pooled account.
• Two signatures needed to move money, with one being yours.
• Regular statements showing the balance and interest.
• A clear answer on what happens to your funds if the intermediary fails.

Common 1031 exchange paths for Louisiana owners

Louisiana owners tend to follow one of three routes.

Louisiana to Louisiana keeps everything local. An owner trades a group of small buildings in New Orleans for one larger property in Baton Rouge or Lafayette, and the gain stays inside the same 3% state system.

Louisiana to Texas is the most common move out of state. Texas has no personal income tax, and Houston and Dallas offer larger buildings than most Louisiana markets. Louisiana has no tracking rule, so the exchange itself creates no ongoing state filing.

Louisiana into a Delaware statutory trust suits owners who want to stop managing property. A DST interest can count as replacement real property, though you give up control over when the trust sells.

Worked example: a Louisiana exchange into Texas

An owner sells a 16-unit building in Baton Rouge for $1,800,000. Selling costs are $90,000 and the adjusted basis is $700,000, so the gain is $1,010,000, of which $300,000 is straight-line depreciation. The $800,000 loan is paid off at closing, leaving $910,000. The owner takes $60,000 in cash and the intermediary receives $850,000.

The owner buys a $1,950,000 building in Houston with the $850,000 of exchange funds and a new $1,100,000 loan. Because the Houston loan is bigger than the Baton Rouge loan it replaces, no debt relief counts as boot. The $60,000 of cash is boot: $60,000 of gain is recognized and $950,000 is deferred.

Louisiana tax on the boot is 3%, or $1,800, and the Louisiana tax deferred is $28,500. Federal tax on the boot depends on its character and the owner’s bracket; at the 25% depreciation rate plus 3.8% net investment income tax, it would be about $17,280.

Had the owner sent all $910,000 to the intermediary and taken no cash, the full $1,010,000 would be deferred: about $255,380 of federal tax at 25% on the depreciation, 20% on the rest and 3.8% net investment income tax, plus $30,300 of Louisiana tax.

Who must make the exchange: entities and co-owners

The taxpayer who sells must be the taxpayer who buys. If a Louisiana LLC taxed as a partnership owns the building, the LLC has to acquire the replacement; the members cannot each take their share and buy separately without breaking the exchange for the part that leaves. A single-member LLC that is disregarded for federal tax counts as its owner, so the owner can sell through the LLC and buy in his or her own name, or the reverse.

Partners who want to go different ways usually have to plan it well before the sale, for example by converting to tenancy-in-common interests so each owner can exchange or cash out alone. The timing of that change is something the IRS looks at, so get advice early rather than in the weeks before closing.

Reverse exchanges, where you buy the replacement before you sell, and improvement exchanges, where exchange funds pay for work on the new building, are both available under federal rules and need an exchange accommodation titleholder to hold title during the exchange. Louisiana adds no rules of its own to those structures; the titleholder simply holds Louisiana title like any other owner until the exchange closes.

Timeline tips for a Louisiana exchange

Line up the replacement search before the sale closes. The 45-day clock starts at closing and does not stop for weekends, holidays or a slow market.

• Sign the exchange agreement and assign the sale contract to the intermediary before closing.
• Tell the title company in writing that proceeds go to the intermediary.
• If you sell late in the year, file an extension so your return due date does not cut the 180 days short.
• If you plan to change your state of residence, settle the timing with your CPA before you buy the replacement.
• Keep the exchange file with the replacement property’s records for when you sell it.

Selling a Louisiana apartment building as part of an exchange

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

For the tax you would owe without an exchange, see Louisiana capital gains tax on real estate. The 1031 exchange calculator runs the federal side for your own numbers, and our guide to choosing a 1031 qualified intermediary covers fees and contract terms.