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

A 1031 exchange in New York lets an investor sell real property held for business or investment and buy replacement real property without recognizing gain for federal income tax, if the deal follows the rules in Internal Revenue Code § 1031 and Treas. Reg. § 1.1031(k)-1. 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 the seller touches the proceeds, which is why title and vesting get attention early.

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

1031 exchange rules that shape the closing

Since 2018, § 1031 applies only to real property. The 2017 tax act limited it to “exchanges completed after December 31, 2017” (see the effective date note to § 1031), and the July 2025 federal tax law left § 1031 intact. Property “held primarily for sale” does not qualify (§ 1031(a)(2)), and U.S. and foreign real property are not like kind (§ 1031(h)). A home the owner lives in is not held for investment.

Rule	Requirement	Source
Identify replacement	45 days	§ 1031(a)(3)
Close on replacement	180 days or due date, if earlier	§ 1031(a)(3)
Identification form	Written, signed	Reg. (c)(2)
Identification limit	3 properties or 200%	Reg. (c)(4)
Proceeds	Held by QI	Reg. (g)(4), (g)(6)

Both clocks start when the relinquished property is transferred and run at the same time (Reg. § 1.1031(k)-1(b)(2)). For a sale late in the year, the tax return due date can arrive before day 180 unless the return is extended.

Identification is a signed writing delivered by day 45, usually to the qualified intermediary, describing each property by legal description, street address or distinguishable name (Reg. (c)(2), (c)(3)). The limit is three properties of any value, or any number worth no more than 200% of the relinquished property (Reg. (c)(4)).

If the seller actually or constructively receives the proceeds first, the transaction is a sale, not an exchange (Reg. (f)). The proceeds go from the closing to the qualified intermediary, never to the seller or the seller’s attorney’s escrow account.

The qualified intermediary in New York

A qualified intermediary (QI) is a party, other than the taxpayer or a disqualified person, that signs a written exchange agreement with the taxpayer and holds the exchange funds (Reg. (g)(4)(iii)). Under Reg. § 1.1031(k)-1(k), anyone who acted as the taxpayer’s employee, attorney, accountant, broker or real estate agent within the two years before the sale is disqualified. Two exceptions matter at a New York closing: services for the taxpayer with respect to 1031 exchanges, and routine financial, title insurance, escrow or trust services by a financial institution, title insurance company or escrow company.

So the seller’s own real estate attorney or broker cannot be the QI, while the title company can handle title and escrow at both closings. Because the QI holds the funds for up to 180 days, investors check whether they are segregated 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 chain of title. Under Reg. § 1.1031(k)-1(g)(4)(iv)(B) and (C), the QI is treated as acquiring and transferring each property if it becomes party to the contract and the property is deeded directly. In practice:

Before the sale closes, the seller assigns its rights under the sale contract to the QI. Every party to the contract must be notified in writing of the assignment on or before the closing (Reg. (g)(4)(v)).
The seller signs the deed directly to the buyer. The net proceeds are wired to the QI.
Before the replacement closing, the taxpayer assigns its rights under the purchase contract to the QI, with the same written notice.
The QI funds the purchase and the replacement seller deeds the property directly to the taxpayer.

The sale closing statement shows net proceeds to the QI after the mortgage payoff. Both contracts need a clause permitting 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 individually owns the relinquished property, the replacement property should be deeded to John Smith or to an entity the IRS ignores for income tax purposes.

A single-member LLC that has not elected corporate treatment is disregarded, and its activities are treated “in the same manner as a sole proprietorship, branch, or division of the owner” (26 CFR § 301.7701-2(a)). So an individual can sell in their own name and take the replacement property 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 cannot each exchange their share unless ownership is restructured beforehand, a tax question to settle well before contract.

For title, name the exchanging taxpayer or its disregarded LLC as proposed insured when ordering the replacement title report, so the report, the deed and the owner’s policy match. If a lender requires a single-purpose borrower entity, 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 the replacement property is bought first. Because the taxpayer cannot own both, an exchange accommodation titleholder (EAT) takes title to one property under Rev. Proc. 2000-37. The written agreement must be signed within five business days of the EAT taking title, the relinquished property identified within 45 days, and the whole arrangement completed within 180 days. An improvement exchange uses the same structure so construction can happen while the EAT holds title, but only improvements in place when the taxpayer receives the property count (Reg. (e)(3)(iii) and (e)(4)).

Here the EAT, or an entity it forms, does appear in the chain of title: one deed in, one deed out, with the EAT entity as record owner in between. Settle at the start with the title company how the EAT and then the taxpayer will be insured.

New York transfer taxes are not deferred

New York State transfer tax. The State tax under Tax Law § 1402 applies to conveyances for consideration, and “consideration” includes payment “by money, property, or any other thing of value” (§ 1401(d)). None of the exemptions in § 1405(b) covers like-kind exchanges. The additional 1% tax under § 1402-a, paid by the grantee, applies if the replacement property is residential and the consideration is $1 million or more; in NYC, the supplemental tax under § 1402-b 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, and the exemption list in NYC Administrative Code § 11-2106(b) has no like-kind exchange exemption.

In reverse exchanges, both taxing authorities have ruled that the extra hop through the EAT is not taxed twice. The State concluded the EAT’s conveyance to the exchanger is exempt as a conveyance without consideration, while the purchase by the EAT is taxable (TSB-A-16(2)R). The NYC Department of Finance concluded the accommodation titleholder and QI acted as the taxpayer’s agents, so the replacement property bore RPTT once, on the seller-to-titleholder transfer, and the later hops through the QI to the taxpayer were exempt (FLR-024795-021). Both rulings bind only on their facts, so confirm the treatment of each deed in the structure.

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

Nonresident sellers: Form IT-2663 and the 1031 exemption

When a nonresident individual, estate or trust sells New York real property, Tax Law § 663 requires an estimated income tax payment on the gain at the top State rate, 10.9% for 2026, and the recording officer will not record the deed without it or a valid exemption. The payment is made on Form IT-2663 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 the Internal Revenue Code, with a summary of the facts. The IT-2663 instructions direct the seller to mark box 4B for a like-kind exchange with no recognized gain and to state that it is a § 1031 exchange. If the seller will recognize some gain, such as cash kept out of the exchange, box 4B does not fit; the worksheet uses the gain to be reported on the federal return.

The form covers individuals, estates and trusts, and a grantor trust files as an individual. The instructions do not address a nonresident owner of a disregarded single-member LLC; raise that early with the title closer. In Westchester, a package with Form IT-2663 and a payment must be recorded in hard copy rather than electronically (Westchester County Clerk; see recording a deed in Westchester).

New York income tax after the exchange

For New York residents, State adjusted gross income starts from federal adjusted gross income (Tax Law § 612(a)), so a federally deferred gain is also deferred for New York. New York does not appear among the states with 1031 clawback rules (California, Massachusetts, Montana and Oregon) in a First American Exchange summary; that is an industry list, not a Tax Department statement.

Gain from New York real property is New York source income for nonresidents (Tax Law § 631(b)). Whether and how New York later reaches deferred gain when the replacement property is out of state is not answered by a published rule; keep records of the 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 the return due date.
Budget State transfer tax, and RPTT in NYC, on the sale.
For a nonresident seller, prepare Form IT-2663 with box 4B for the recording package.

Official sources

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.