1031 Exchanges and Title in New York: Deadlines, Vesting and Transfer Taxes

A 1031 exchange lets you sell real estate held for business or investment and buy replacement real estate without paying federal income tax on the gain now. You have to follow the federal exchange law and IRS regulations. In New York, the exchange changes the paperwork at both closings but not the transfer taxes. The New York State transfer tax and, in the five boroughs, the NYC Real Property Transfer Tax (RPTT) are still due on the sale. The exchange fails if the wrong party takes title or you touch the sale money, so title and vesting (whose name goes on the deed) need attention early.

The federal rules apply everywhere. The State transfer tax and the nonresident payment rule apply statewide. The RPTT applies only in the five boroughs.

The federal rules that shape the closing

Since 2018, 1031 exchanges are limited to real property. The 2017 tax act limited them to “exchanges completed after December 31, 2017,” and the July 2025 federal tax law left the exchange rules intact. Property held mainly for sale doesn’t qualify, and U.S. and foreign real estate can’t be exchanged for each other. A home you live in is not held for investment.

Rule Requirement
Identify replacement Within 45 days
Close on replacement Within 180 days, or by your tax return due date if earlier
How to identify In writing, signed
Identification limit 3 properties of any value, or any number worth up to 200% of the property sold
Sale money Held by the qualified intermediary

Both clocks start when the property you’re selling is transferred, and they run at the same time. For a sale late in the year, your return due date can arrive before day 180 unless you extend the return.

You identify properties in a signed writing delivered by day 45, usually to the qualified intermediary. Describe each one by legal description, street address or a name that sets it apart.

If you receive the sale money first, or it is made available to you (the IRS calls this constructive receipt), the deal is a sale, not an exchange. The money goes from the closing to the qualified intermediary, never to you or your attorney’s escrow account.

The qualified intermediary

A qualified intermediary (QI) is a person or company that signs a written exchange agreement with you and holds the exchange money. You can’t be your own QI, and neither can a “disqualified person.” Anyone who acted as your employee, attorney, accountant, broker or real estate agent within the two years before the sale is disqualified.

Two kinds of work don’t count toward that two-year test, and both matter at a New York closing. One is services for you on 1031 exchanges themselves. The other is routine financial, title insurance, escrow or trust services from a financial institution, title insurance company or escrow company.

So your own real estate attorney or broker can’t be the QI, but the title company can handle title and escrow at both closings. Because the QI holds the money for up to 180 days, investors check whether the funds are kept separate and what bond or insurance stands behind them.

How title moves: assignment and direct deeding

In a standard exchange the QI never appears in the property’s ownership records. Under the IRS rules, the QI is treated as buying and selling each property if it becomes a party to the contract and the property is deeded directly. In practice:

  1. Before the sale closes, you assign (transfer) your rights under the sale contract to the QI. Every party to the contract must get written notice of the assignment on or before closing.
  2. You sign the deed directly to the buyer. The net sale money is wired to the QI.
  3. Before the replacement closing, you assign your rights under the purchase contract to the QI, with the same written notice.
  4. The QI pays for the purchase, and the replacement seller deeds the property directly to you.

The sale closing statement shows the net money going to the QI after the mortgage payoff. Both contracts need a clause allowing assignment to a QI and requiring the other side to cooperate. Add it before signing, not at closing.

Vesting: the same taxpayer on both deeds

The taxpayer that sells must be the taxpayer that buys. If John Smith owns the property he’s selling in his own name, the replacement property should be deeded to John Smith or to an entity the IRS ignores for income tax.

A single-member LLC that hasn’t chosen to be taxed as a corporation is ignored (“disregarded”). Its activities are treated “in the same manner as a sole proprietorship, branch, or division of the owner” (IRS rule). So you can sell in your own name and take the replacement in a new single-member LLC, or the reverse.

A multi-member LLC taxed as a partnership is its own taxpayer. Members who want to go separate ways can’t each exchange their share unless ownership is restructured beforehand. That is a tax question to settle well before signing a contract.

For title, name the exchanging taxpayer, or its disregarded LLC, as the proposed insured when you order the replacement title report. Then the report, the deed and the owner’s policy match. If a lender requires a single-purpose borrower LLC, that LLC must be disregarded and owned by the exchanging taxpayer. A last-minute LLC means correcting the report and deed before closing.

For how title coverage behaves when an owner later moves property into an LLC, see deeding a NYC rental into an LLC.

Reverse and improvement exchanges

In a reverse exchange you buy the replacement property first. Because you can’t own both, an exchange accommodation titleholder (EAT), a company that holds title temporarily, takes title to one property under IRS guidance. The written agreement must be signed within five business days after the EAT takes title. The property you’re selling must be identified within 45 days, and the whole arrangement completed within 180 days.

An improvement exchange uses the same setup so construction can happen while the EAT holds title. Only improvements in place when you receive the property count.

Here the EAT, or a company it forms, does appear in the ownership records: one deed in, one deed out, with the EAT as owner in between. Settle at the start with the title company how the EAT and then you will be insured.

New York transfer taxes still apply

State transfer tax. New York’s transfer tax applies to transfers for consideration, and consideration includes payment “by money, property, or any other thing of value” (definition). None of the exemptions covers 1031 exchanges. An additional 1% tax, paid by the buyer, applies if the replacement property is residential and the price is $1 million or more. In NYC, a supplemental tax adds to it from $2 million.

NYC RPTT. In the five boroughs, the RPTT applies to the sale at the rates published by the NYC Department of Finance. The City’s list of exemptions has no 1031 exemption.

Reverse exchanges. Both the State and the City have ruled that the extra step through the EAT isn’t taxed twice. The State found the EAT’s transfer to you is exempt because no consideration is paid, while the EAT’s purchase is taxable (State advisory opinion). The NYC Department of Finance found the EAT and the QI acted as the taxpayer’s agents. So the replacement property bore RPTT once, on the seller-to-EAT transfer, and the later steps through the QI to the taxpayer were exempt (City ruling). Both rulings bind only on their own facts, so confirm how each deed in your structure is treated.

For rates and who pays, see NYC and NYS transfer tax.

Nonresident sellers: Form IT-2663

When a nonresident individual, estate or trust sells New York real property, state law requires an estimated income tax payment on the gain at the top State rate, 10.9% for 2026. The recording office won’t record the deed without the payment or a valid exemption. The payment is made on Form IT-2663, filed with the deed.

A 1031 exchange can avoid the payment. Part 3, box 4B, of the 2026 IT-2663 applies where the seller “is not required to recognize any gain or loss” under federal tax law, with a summary of the facts. The IT-2663 instructions say to mark box 4B for a like-kind exchange with no recognized gain and to state that it is a 1031 exchange. If you will owe tax on some gain, such as cash kept out of the exchange, box 4B doesn’t fit. The form’s worksheet then uses the gain you’ll report on your federal return.

The form covers individuals, estates and trusts. A grantor trust (a trust taxed to the person who set it up) files as an individual. The instructions don’t address a nonresident who owns through a single-member LLC the IRS disregards; raise that early with the title closer. In Westchester, a package with Form IT-2663 and a payment must be recorded on paper, not electronically (Westchester County Clerk; see recording a deed in Westchester).

New York income tax after the exchange

For New York residents, New York adjusted gross income starts from federal adjusted gross income (state law). So a gain deferred for federal tax is also deferred for New York. New York is not on an industry list of states with 1031 “clawback” rules (California, Massachusetts, Montana and Oregon) from First American Exchange. That is an industry list, not a Tax Department statement.

For nonresidents, gain from New York real property is New York source income, meaning New York can tax it (state law). No published rule says whether or how New York later reaches deferred gain when the replacement property is out of state. Keep records of your New York basis and deferred gain.

Checklist before the sale contract is signed

  • Sign the QI exchange agreement before the sale closes, and put the QI assignment clause in both contracts.
  • Order replacement title in the exact name of the exchanging taxpayer or its disregarded LLC.
  • Calendar day 45 and day 180 from the sale closing, and check your return due date.
  • Budget State transfer tax on the sale, plus RPTT in NYC.
  • For a nonresident seller, prepare Form IT-2663 with box 4B for the recording package.

Official sources

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Korvane Title is preparing to launch in New York. It is not licensed as a title insurance agent and does not accept title orders. Content on this site is general information, not legal advice.