1031 Exchange in New Jersey

By Skyline Capital Investments · Updated October 26, 2026 · 6 min read

How a 1031 exchange works in New Jersey

A 1031 exchange in New Jersey follows the federal rules, and New Jersey defers its own tax on the same gain the IRS defers. You sell investment real estate, a qualified intermediary holds the money, you identify a replacement within 45 days and you close within 180 days. If you reinvest all the net cash and replace the debt, neither government taxes the gain now.

The difference from a plain federal exchange is paperwork at closing. Every New Jersey seller signs a GIT/REP form so the county clerk can record the deed, and the form you sign depends on your residency and whether the exchange covers the whole gain.

The federal rules in brief

The federal rules are the same for a New Jersey building as for one anywhere else in the country. Our 1031 exchange rules page covers each one with its source, and the main 1031 exchange guide explains the types of exchange.

Does New Jersey recognize 1031 exchanges?

Yes. New Jersey follows Section 1031 in practice: the Division of Taxation accepts gain that is not recognized federally under Sections 721, 1031 or 1033 as exempt, and that exemption is item 7a on Form GIT/REP-3. The deferred gain then carries into the basis of your replacement property, the same way it does on your federal return.

New Jersey does not claw back deferred gain when the replacement property is in another state. California, Massachusetts, Montana and Oregon have rules that track exchanged gain out of state, but New Jersey has no such rule and no annual filing to keep the deferral alive. That makes a New Jersey to Pennsylvania, Florida or Texas exchange simpler from the state’s point of view than one leaving California.

NJ withholding at closing and how an exchange changes it

Nonresident sellers in New Jersey normally make an estimated tax payment at closing, but a valid exchange removes it. The usual payment, on Form GIT/REP-1, is the greater of 10.75% of the gain or 2% of the sale price, and the deed will not record without it. Residents never make this payment, though they still sign GIT/REP-3.

• Tell your closing attorney or title company early that the sale is an exchange so the right form is in the closing package.
• The 2% failed-exchange payment is a prepayment, not the final tax. Your actual New Jersey tax on a failed exchange is figured on your return and can be higher.

Partial exchanges and boot in New Jersey

Boot is taxed by New Jersey the same way it is taxed federally: any cash you keep, or debt that is not replaced, is recognized gain in the year of the sale. New Jersey taxes that recognized gain at its regular Gross Income Tax rates, up to 10.75%, with no lower rate for the depreciation part.

Say you sell for $3,000,000, buy a $2,700,000 replacement and keep $300,000 in cash. Federally you recognize up to $300,000 of gain, taxed first as unrecaptured Section 1250 gain at up to 25%. New Jersey adds its own tax on the same $300,000. A resident reports it on the NJ-1040. A nonresident has two choices on the GIT/REP forms: pay 2% of the nonexempt amount when the deed records, or pay later through NJ-1040-ES estimated payments.

Your New Jersey basis can differ from your federal basis if bonus depreciation was taken, because New Jersey does not allow it. That difference carries into the replacement property, so keep your Worksheet GIT-DEP records with the exchange file.

Does New Jersey regulate qualified intermediaries?

No. New Jersey has no statute that licenses, bonds or regulates qualified intermediaries. The nine states that do are California, Colorado, Connecticut, Idaho, Maine, Nevada, Oregon, Virginia and Washington. The one New Jersey rule that touches intermediaries is the GIT/REP-3 instruction that makes the intermediary file GIT/REP-1 and pay 2% if a deferred exchange fails.

Because the state does not police them, the checks are up to you. Ask whether the intermediary carries a fidelity bond and errors and omissions coverage, whether exchange funds sit in a separate account in your name or a qualified escrow, and who can move money out of it. Our 1031 qualified intermediary guide lists the questions to ask.

Transfer fees in a New Jersey exchange

An exchange defers income tax, not New Jersey’s transfer fees. The seller pays the Realty Transfer Fee on the relinquished property in an exchange just as in a sale, at rates that reach $6.05 per $500 of price over $1,000,000.

The Graduated Percent Fee, the seller-paid charge of 1% to 3.5% on deeds over $1,000,000, does not apply to apartment buildings. It does apply to residential Class 2 property, to commercial Class 4A property other than industrial or apartment, and to co-op units. If you are exchanging out of a small office or retail building in New Jersey over $1,000,000, budget for it.

Common 1031 exchange paths out of New Jersey

A common New Jersey exchange starts with a North Jersey or Hudson County multifamily building and ends in a lower-tax state, a Delaware statutory trust, or both. The state’s average effective property tax rate of 1.88% (Tax Foundation 2026) and its 10.75% top income tax rate push owners to look elsewhere for the replacement.

• Into a larger building in a state with lower property tax. With no clawback, the deferred New Jersey gain does not follow you through annual filings.
• Into one or more DST interests, for owners who want to stop managing tenants. A DST can also fill a gap when the main replacement comes in under the sale price.
• Into a Section 721 contribution to a REIT operating partnership, usually after holding a DST. GIT/REP-3 lists Section 721 gain alongside 1031.
• Into another New Jersey building, often closer to home or with newer construction that is exempt from local rent control for up to 30 years.

Worked example: a $3 million New Jersey apartment exchange

A married couple who live in New Jersey sell a 24-unit building in Union County for $3,000,000. Selling costs are $90,000, so the amount realized is $2,910,000. Their adjusted basis is $1,100,000 after $600,000 of depreciation, so the gain is $1,810,000. They have $400,000 of other income.

As a taxable sale, the federal tax is $150,000 on the depreciation at 25%, $242,000 on the remaining $1,210,000 at 20% and $68,780 of net investment income tax, for $460,780. New Jersey tax on the gain, stacked on their other income, is $181,295. The total is about $642,075, before any credits or deductions.

With a full exchange into a $3,000,000 or larger replacement, both amounts are deferred. Because the building is an apartment property, there is no Graduated Percent Fee on the sale, though the Realty Transfer Fee still applies.

If the same couple lived in New York, a taxable sale would require a GIT/REP-1 payment of $194,575 at closing, which is 10.75% of the gain, since that beats the $60,000 minimum. With a full exchange, they file GIT/REP-3 with exemption 7a and pay nothing at recording. If the exchange later failed, the intermediary would have to pay $60,000, which is 2% of the $3,000,000 price. You can model your own numbers with the 1031 exchange calculator.

Timeline tips for a New Jersey exchange

The 45-day and 180-day clocks start on the day the relinquished property transfers at closing, so plan the New Jersey paperwork before that day.

• Sign the exchange agreement and assign the contract to the intermediary before closing, not at the table.
• Have the GIT/REP-3 with exemption 7a, and the value of the like-kind property you expect to receive, ready for the closing package if you are a nonresident.
• Confirm the property class on the tax record so the title company does not collect a Graduated Percent Fee that should not apply.
• Line up your replacement before day 45. North Jersey sellers chasing out-of-state property often lose time to travel and inspections.

Selling a New Jersey building into an exchange

Skyline buys apartment buildings with five or more units in New Jersey and works with owners who are starting an exchange. We buy directly, close on your timeline, and can work inside 1031 deadlines. We sign the intermediary’s assignment and can set a closing date that gives you room to find the replacement first.