1031 Exchange in New York City: What to Settle Before Your Closing

A 1031 exchange for a New York City sale is won or lost before the closing. The exchange agreement, the assignment and the wiring instructions have to exist before the deed transfers, and the answer to "who owns this property, and how has it been used?" decides whether there is an exchange to set up at all.

See what to prepare before closing

Start here: where are you in the sale?

• Under contract, closing weeks away. You are in time. The exchange has to be set up on or before the closing date: exchange agreement signed, your rights in the sale contract assigned to the qualified intermediary with written notice to the other parties, and closing instructions that send the net proceeds to the intermediary. Go to the checklist.
• You found the replacement first and have not sold. That is a reverse exchange, a different structure with its own rules: an exchange accommodation titleholder holds one of the properties. It must be arranged before you buy. See reverse 1031 exchange.
• Already closed, and the proceeds reached you or your attorney's account. The regulations treat money you actually or constructively received as a sale, not an exchange. A CPA can tell you what the sale means for this year's return. See what happens after closing.

Why the closing is the line

The federal rule is the same in New York as everywhere else: if you actually or constructively receive the sale proceeds before you receive replacement property, the transaction is a sale (26 CFR §1.1031(k)-1(f)(1)). Money credited to your account, set aside for you, or available to you on request counts as received (§1.1031(k)-1(f)(2)), and money received by your agent counts as received by you. That last point matters in New York because proceeds often pass through a closing attorney's escrow. The intermediary arrangement works only if the exchange agreement expressly limits your right to receive, pledge, borrow or otherwise obtain the benefit of the funds until the exchange allows it (§1.1031(k)-1(g)(4)(ii) and (g)(6)).

Two clocks start on the day the deed transfers

You have 45 calendar days to identify replacement property in a signed writing delivered to the intermediary or another permitted party. The exchange must be completed by the earlier of day 180 or the due date, including extensions, of your tax return for the year of the sale (26 U.S.C. §1031(a)(3)). For a sale that closes late in the year, the return due date can arrive first unless you extend.

Worked dates (illustration): the sale closes November 13, 2026, so day 45 is December 28, 2026. An individual's return is due April 15, 2027, which ends the exchange period on that date unless the return is extended. With an extension, the period runs to day 180, May 12, 2027. Run your own dates in the deadline calculator.

What an exchange does not change at a New York City closing

A 1031 exchange defers federal income tax on the gain, and New York's resident income tax generally starts from federal adjusted gross income (N.Y. Tax Law §612(a)). It does not remove the taxes charged on the transfer itself. New York State's transfer tax applies to conveyances, the state's definition of "conveyance" includes an exchange, and the published list of exempt conveyances does not include like-kind exchanges.

For a seller, that usually means planning for:

Transfer taxes paid at closing come out of the proceeds, so they reduce the money that reaches the intermediary. Your CPA should see the draft settlement statement before closing.

If you are not a New York resident. Nonresident sellers file Form IT-2663 when the deed is recorded. When no gain is recognized because the sale is part of a §1031 exchange, the instructions direct you to mark box 4B in Part 3, describe the exchange and complete Form IT-2663-V. Any cash or other property you receive (boot) is still computed as gain. Co-op shares use a different form, IT-2664. See the Form IT-2663 instructions.

Ownership and use: the questions that decide whether there is an exchange

Is it held for investment or business use? Section 1031 covers real property held for productive use in a trade or business or for investment. Property used solely as your personal residence does not qualify (Rev. Proc. 2005-14; Form 8824 instructions). A two- or three-family house where you live in one unit and rent the others is a mixed case: the rented portion and the residence portion are analyzed separately, and the rules for combining §121 and §1031 are in Rev. Proc. 2005-14. Ask your CPA before you sign the contract.

Who is the seller on the deed, and who will buy? The taxpayer who sells should be the taxpayer who buys. If the building is owned by a multi-member LLC taxed as a partnership, the LLC is the exchanger. Members can't each take their share into a different exchange, because interests in a partnership are not real property for §1031 (26 CFR §1.1031(a)-3(a)(5)). Ownership changes shortly before a sale need tax advice before the contract is signed. See 1031 exchanges and LLCs.

Is it a co-op? The federal regulation lists stock in a cooperative housing corporation among the interests that are real property for §1031 (26 CFR §1.1031(a)-3(a)(5)(i)). Whether a particular corporation meets the tax definition is a fact question. Board timing and contract assignment are where co-op exchanges need care; confirm the steps with your attorney. More: NYC co-op and condo exchanges.

Is it rent-stabilized? Regulation status affects value and the buyer pool, not whether the building can be exchanged. See rent-stabilized buildings.

Coordinating the people at your closing

For an exchange, your closing attorney and title company need three things before the closing date: the assignment and notice (and who prepares and circulates it), wiring instructions to the exchange account, and a settlement statement that shows the intermediary receiving the net proceeds. Your attorney or CPA can advise on the exchange, but can't act as your intermediary if they have been your attorney or accountant in the two years before the sale on matters other than 1031 exchanges (26 CFR §1.1031(k)-1(k)(2)).

Before-closing checklist (New York City sale)

Watch

General rule explainer — not recorded for New York City

If the Funds Hit Your Account, It's Over · 20 seconds

This short clip covers only the general point that proceeds must not reach you. It does not describe New York closings, transfer taxes or how any particular intermediary holds funds.

A hypothetical sequence

Hypothetical — not a client and not a result. A Brooklyn two-family is under contract with a closing in five weeks. The owners, two spouses on the deed, lived in the upper unit until two years ago and have rented both units since. Before the closing they need answers to four questions: whether the whole building has been held for investment, or whether the former residence needs the combined §121/§1031 analysis (their CPA); whether they will take title to the replacement the same way they hold this one; who circulates the assignment and notice (their attorney and the intermediary); and what the settlement statement will show after transfer taxes and the mortgage payoff. They list replacement candidates in another state before closing, so day 45 is for choosing, not searching.

Frequently asked questions

Can I 1031 exchange New York City property into another state?

Yes. Real property in the United States is like-kind to other U.S. real property; only U.S. and foreign real property are not like-kind to each other (26 U.S.C. §1031(h)). Nonresident sellers still file Form IT-2663 when the deed is recorded.

Does a 1031 exchange avoid New York State or NYC transfer tax?

No. Transfer taxes are imposed on the conveyance. The state's definition of conveyance includes an exchange, and the published list of exempt conveyances has no like-kind item. Deferral applies to income tax on the gain.

Can my closing attorney or accountant be my qualified intermediary?

Not if they have acted as your attorney or accountant within the two years before the sale on matters other than 1031 exchanges. They are "disqualified persons" under 26 CFR §1.1031(k)-1(k)(2). They can still advise you.

Is it "six months" to close?

No. It is 180 calendar days or your tax-return due date including extensions, whichever comes first. Only IRS disaster relief under Rev. Proc. 2018-58 can postpone the deadlines. See the exchange period and your tax return.

Can a co-op be exchanged?

The federal regulation lists stock in a cooperative housing corporation as real property for §1031. Whether a particular corporation meets the definition, and whether board approval fits inside the 180 days, depends on the property; confirm with your attorney.

Who you'll work with

Leah Badach is a Certified Exchange Specialist with 11+ years of 1031 exchange experience. Before you sign, Leah confirms in writing which qualified intermediary will hold your funds and gives you its account, bond and insurance documents. Ask for those documents from any intermediary you consider.

You can verify the credential in the FEA CES directory.

New York pages

New York State rules · Brooklyn · Manhattan · Queens · Staten Island · Long Island · 1031 exchange timeline · Form 8824 explained · NYC co-op and condo exchanges · Rent-stabilized buildings

Sources

• 26 U.S.C. §1031: (a)(3) the 45-day and 180-day (or return due date) periods; (h) U.S. and foreign real property.
• 26 CFR §1.1031(k)-1: (f) actual and constructive receipt; (g)(4) and (g)(6) qualified intermediaries and limits on access to funds; (k) disqualified persons.
• 26 CFR §1.1031(a)-3: definition of real property, including co-op stock; partnership interests excluded.
• Rev. Proc. 2005-14: combining §121 and §1031; a residence alone does not qualify.
• Instructions for Form 8824: reporting the exchange and the exchange-period rule.
• Rev. Proc. 2018-58, Section 17: disaster-relief postponement of 1031 deadlines.
• NYS Tax Department, real estate transfer tax and Form TP-584-NYC instructions: state transfer tax, additional base tax, mansion and supplemental taxes, definition of conveyance.
• NYC Department of Finance, Real Property Transfer Tax: city rates and the 30-day return.
• Form IT-2663 instructions: nonresident estimated tax and the like-kind exchange box.
• N.Y. Tax Law §612: New York adjusted gross income starts from federal AGI.

Educational information, not tax or legal advice.