NYC 1031 Exchange
Calculate your potential tax savings with a 1031 like-kind exchange. Defer capital gains and depreciation recapture taxes by reinvesting in replacement property. See exactly how much you need to reinvest for full tax deferral.
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Enter the sale figures on the left to see how much tax a 1031 like-kind exchange would defer.
Understanding 1031 Exchanges
What is a 1031 Exchange?
A 1031 exchange, named after Section 1031 of the Internal Revenue Code, allows investors to defer capital gains taxes when selling investment property by reinvesting the proceeds into a "like-kind" replacement property. Real estate investors have used it for nearly 100 years to trade up in size and quality without paying tax on the gain at each sale.
Key Requirements for a Valid 1031 Exchange
- Like-Kind Property: Both properties must be held for investment or business use. In real estate, most property types qualify (office, retail, multifamily, land, etc.).
- Qualified Intermediary (QI): You cannot touch the proceeds. A QI must hold the funds between sale and purchase.
- 45-Day Identification: You must identify potential replacement properties within 45 days of selling.
- 180-Day Closing: You must close on the replacement property within 180 days of selling.
- Equal or Greater Value: To defer all taxes, the replacement property must be equal or greater in value.
What is "Boot" in a 1031 Exchange?
"Boot" is any cash or non-like-kind property received in an exchange that doesn't qualify for tax deferral. Boot is taxable in the year of the exchange. Common sources of boot include:
- •Cash received from the exchange (not reinvested)
- •Debt reduction (if replacement property has less debt)
- •Non-real estate property received in the exchange
NYC Tax Considerations
New York City owners pay some of the highest combined capital gains rates in the country. Federal runs up to 23.8% (including NIIT), NY State is 8.82%, and NYC adds 3.876%, so the effective rate can top 35%. That is why a 1031 matters so much to NYC sellers. NYC's Real Property Transfer Tax (RPTT) still applies to the sale and the purchase, but the exchange itself doesn't trigger any RPTT beyond what a normal closing would.
Identification Rules
Within 45 days, you must identify replacement properties using one of these rules:
Related Calculators & Pillar Guides
Skyline Properties places 1031 capital into Manhattan replacement property within the 45-day clock. For the full Skyline Properties playbook on sourcing, see the Manhattan Investment Sales Broker pillar guide.
Frequently Asked Questions
Can I do a 1031 exchange on my primary residence?
No. A 1031 exchange applies only to investment or business property. Primary residences and second homes used mainly for personal purposes don't qualify. If you've converted a rental into your primary residence (or the reverse), special rules may apply, so talk to your tax advisor.
What happens if I miss the 45-day or 180-day deadline?
Miss either deadline and the exchange fails. You owe capital gains tax on the sale as if you had never attempted an exchange. The only relief is a narrow exception for federally declared disasters. Otherwise the IRS enforces both dates strictly and will not extend them.
Can I exchange into multiple replacement properties?
Yes. It is common when an owner wants to break one large building into several smaller ones. You still have to follow an identification rule (3-property, 200%, or 95%), reinvest every dollar of proceeds, and replace all of the debt.
What is a reverse 1031 exchange?
In a reverse exchange you buy the replacement property before you sell the relinquished one. It's the right tool when a good building comes up and you can't wait for your own sale to close. It costs more and takes more work, because an Exchange Accommodation Titleholder (EAT) has to hold title to the new property in the meantime.
FAQ
1031 exchange: common questions
The eight questions investors ask us before starting a §1031 like-kind exchange. Skyline Properties can also refer NYC-focused Qualified Intermediaries we've used on past exchanges.
What is a 1031 exchange?
A 1031 like-kind exchange (IRC §1031) lets a real estate investor defer federal capital-gains tax by reinvesting sale proceeds into a 'like-kind' replacement property within strict timelines. There are two hard deadlines: 45 days from the relinquished sale to formally identify replacement candidates, and 180 days to close on the replacement. A Qualified Intermediary must hold the funds throughout; the seller cannot constructively receive the proceeds.
What qualifies as 'like-kind' property for a 1031 exchange?
For real estate, 'like-kind' is broad: any U.S. real property held for investment or productive use in trade qualifies. You can exchange a Manhattan multifamily building for a NYC office, an outer-borough industrial, a Brooklyn development site, or even a triple-net retail in another state. Personal residences and dealer property (held for resale) do not qualify. The 2017 TCJA narrowed §1031 to real property only.
What are the 1031 exchange deadlines I need to hit?
Two hard deadlines run from the date the relinquished property closes: (1) the 45-day identification window, to formally identify up to 3 candidate replacement properties (or more under the 200% rule); and (2) the 180-day exchange completion window, to close on the identified replacement(s). Both deadlines run concurrently. Missing either one disqualifies the entire exchange and triggers the full capital-gains tax. There are no extensions for market conditions or financing delays, or for natural disasters.
What is a Qualified Intermediary (QI) and why is it required?
A Qualified Intermediary (QI) is an independent third party that holds the relinquished sale proceeds during the 1031 exchange period. IRS rules require one because the seller cannot constructively receive the funds without disqualifying the exchange. Standard QI fees run $1,000-$3,000 for a straightforward forward exchange; reverse and build-to-suit (improvement) exchanges typically cost $5,000-$15,000+. Skyline Properties (Robert Khodadadian, Founder, President & CEO, $976M+ closed, including Manhattan 1031 replacement-property sourcing like the $65M Kaufman ground lease at 236 Fifth Avenue) refers experienced NYC-focused QIs we have worked with on past Manhattan investment-sales exchanges.
Can I do a 1031 exchange on a Manhattan office building?
Yes. Manhattan office buildings, multifamily, retail, ground-lease fee positions, and development sites are all 1031-eligible. The hard part is timing: identifying and closing on a like-kind Manhattan replacement within 180 days takes either off-market deal flow lined up in advance or a willingness to look at outer-borough or out-of-state assets. Skyline Properties’ buyer-mandate network helps source 1031 replacement candidates inside the deadline.
What happens if I miss the 1031 identification or closing deadline?
If you miss the 45-day identification window or the 180-day closing window, the exchange fails entirely. The QI releases the funds back to you, and the original sale becomes fully taxable as if no exchange was attempted: federal capital gains tax (typically 15-20%), depreciation recapture (25%), state tax (NY 6.85-10.9%), and NYC tax (3.876%) all apply. The combined tax bill can exceed 35% of the gain.
What is a reverse 1031 exchange?
A reverse 1031 exchange is when the replacement property is acquired BEFORE the relinquished property is sold. Common when the perfect replacement comes available before you can dispose of your existing asset. Requires an 'Exchange Accommodation Titleholder' (EAT) to hold either the relinquished or replacement property during the parking period. More expensive and complex than a standard forward exchange, but solves real timing problems.
What is a Delaware Statutory Trust (DST) and how does it relate to 1031?
A Delaware Statutory Trust is a fractional-ownership structure that qualifies as 1031 replacement property. DSTs let smaller investors deploy 1031 proceeds into institutional-grade real estate (large multifamily, industrial portfolios, net-lease retail) without managing the property directly. Trade-offs: passive ownership (no operational control), DST sponsor fees (typically 5-10% upfront load), and limited liquidity. Useful when the 180-day clock is running and no direct deal pencils.