Selling a 349-unit NYC portfolio is a once-in-a-generation move. If you plan to defer capital gains and keep your money working, a Section 1031 exchange can be a powerful tool. The timelines are strict and New York’s transfer taxes still apply, so planning is everything. This guide breaks down the rules, timelines, structures, and a step-by-step plan tailored to a large multifamily sale in NYC and reinvestment in the Tri-State. Let’s dive in.
What a 1031 exchange does
A 1031 exchange lets you defer federal recognition of gain when you sell investment real estate and acquire other like-kind real property. Deferral is not forgiveness; tax can be recognized later if you receive boot or sell without another exchange. Like-kind covers U.S. real property held for investment or business use, and you can exchange across state lines (NY to NJ or CT).
To fully defer, acquire replacement property of equal or greater value and replace the debt you paid off at sale. If you do not replace debt or you receive cash or non-like-kind property, you may have taxable boot.
The 45/180 day deadlines
Two federal timelines govern every exchange and they cannot be extended except for limited IRS disaster relief.
- Identification period: you must identify replacement property in writing within 45 calendar days of closing the sale of your relinquished property.
- Exchange period: you must acquire the replacement property within 180 calendar days of that sale, or by your federal return due date (with extensions) for that tax year, whichever comes first.
Both periods run at the same time. Missing either deadline kills the exchange.
Identification rules you can use
Your identification must be in a written, signed document delivered to your qualified intermediary (QI) or the seller of the replacement property within 45 days. You can use one of these rules:
- Three-property rule: identify up to three properties of any value.
- 200% rule: identify more than three if the total value does not exceed 200% of what you sold.
- 95% exception: identify more than three even if total value exceeds 200%, but you must acquire at least 95% of the value identified.
For a 349-unit portfolio, plan early so your list supports multiple targets and backup options.
Avoid these deal killers
Engage a qualified intermediary before you close your sale. The QI holds proceeds and facilitates the exchange so you never take constructive receipt. Avoid disqualified persons and select a QI with commercial multifamily, reverse, and improvement exchange experience.
Do not let funds touch your account. Taking possession of sale proceeds, even briefly, invalidates the exchange. Coordinate debt early so you replace prior leverage or add equity to avoid mortgage boot.
Report the exchange on your federal return, typically using Form 8824. Keep documentation that supports basis, debt replacement, identification, and acquisition.
Selling a 349-unit portfolio: key moves
A single closing that conveys multiple buildings or an entity interest can be structured as one relinquished property or multiple. Your advisors will allocate debt among assets and set a replacement value target to avoid boot.
Confirm who the taxpayer is. Single-member LLCs, partnerships, and multi-member LLCs can typically exchange, but a sale of corporate stock does not qualify. If multiple owners are involved, decide whether the entity exchanges or whether all owners exchange in coordination. Be cautious with “drop-and-swap” strategies.
Engage lenders early. Due-on-sale clauses, prepayment penalties, and new loan terms affect timing and your ability to match debt. For complex timelines, explore reverse or improvement exchanges, which add cost and require an Exchange Accommodation Titleholder.
Replacement paths in the Tri-State
You have several ways to redeploy proceeds while meeting 1031 requirements:
- Direct purchase of new multifamily assets in NY, NJ, or CT.
- Multiple smaller properties to diversify and hit value targets using the identification rules.
- Delaware Statutory Trusts (DSTs) for passive ownership with 1031 eligibility, subject to strict structures and investor-level restrictions. Evaluate sponsor, loan terms, and timing.
- Tenancy-in-Common (TIC) or other fractional interests, structured to satisfy 1031 standards.
- Reverse or improvement exchanges if you need to acquire first or complete build-to-suit work within the exchange window.
NY and NYC taxes you still owe
A 1031 exchange defers federal income tax on gain, but it does not eliminate state or local transfer taxes or recording taxes. Budget for New York State and New York City transfer taxes and related closing costs regardless of exchange status.
New York State generally follows federal treatment for deferred exchanges, and New York City income tax can apply for residents when gain is recognized. You still must complete state and local filings correctly even when the federal gain is deferred.
Working across state lines
Federal 1031 rules allow you to exchange into New Jersey or Connecticut. Each state has its own reporting, transfer taxes, and possible nonresident withholding. Coordinate with your CPA and counsel in each jurisdiction to align filing, withholding, and depreciation planning.
If you acquire rent-regulated assets, factor in the operational differences versus non-regulated properties. Local housing rules can affect cash flow and capital plans.
Step-by-step checklist
- Pre-sale strategy: confirm entity structure, choose forward, reverse, DST, TIC, or improvement path, and model debt replacement.
- Engage your QI before signing final sale documents and well before closing.
- Build a prioritized identification list early. Use the three-property, 200% rule, or 95% exception as needed.
- Coordinate financing with lenders to replace prior debt or add equity to avoid mortgage boot.
- Align closing documents among seller, QI, title, and attorneys. Track timelines and escrow flows.
- Post-closing: prepare Form 8824 and provide all records to your tax preparer for federal, state, and city filings.
Risks and red flags
- Missing the 45-day or 180-day deadline.
- Taking or controlling sale proceeds instead of using a QI.
- Weak QI capabilities for complex commercial exchanges.
- Selling stock of a C corporation rather than real property.
- Poor debt planning that triggers mortgage boot.
- Transfer tax surprises from deal structure or title mechanics.
Your advisory team
- Qualified intermediary with commercial multifamily, reverse, and improvement exchange experience.
- Real estate tax attorney for exchange documents, entity, and related-party issues.
- CPA for basis, debt replacement modeling, and federal, state, and city reporting.
- Title company and commercial closing attorney for transfer tax computation and closings.
- Lenders familiar with 1031 timelines and documentation.
Bringing it together
A clean 1031 on a 349-unit NYC portfolio depends on early coordination, airtight timelines, and disciplined execution. You need a marketing and sale process that maximizes price, a QI engaged before closing, financing lined up to replace debt, and a replacement plan that fits your goals and the identification rules.
If you want a confidential, institutionally managed sale process with a clear path to redeploy capital in the Tri-State, we can help you plan timing, run buyer outreach, and coordinate with your legal and tax teams. Discuss your exit strategy with Exodus Capital.
FAQs
What is a 1031 exchange for NYC multifamily sellers?
- It is a federal mechanism that defers recognition of gain when you sell investment real estate and acquire like-kind U.S. real property, following strict identification and closing timelines.
What are the 45-day and 180-day rules in a 1031?
- You must identify replacement property in writing within 45 days and complete the acquisition within 180 days (or by your return due date, if earlier); both periods run concurrently.
How many replacement properties can I identify?
- Up to three of any value, or more if the total value stays within 200% of what you sold, or more under the 95% exception if you acquire at least 95% of the identified value.
What is boot and how do I avoid it?
- Boot is taxable cash or non-like-kind property received, including mortgage boot if you do not replace debt; avoid it by matching or exceeding value and debt, or by adding equity.
Can I 1031 into a Delaware Statutory Trust (DST)?
- Yes, DST interests are commonly structured to qualify as like-kind replacement property, offering passive ownership with strict investor-level limitations.
Do NYC and NYS transfer taxes go away in a 1031?
- No, a 1031 defers federal gain but does not eliminate New York State or New York City transfer taxes or recording taxes.
Can I exchange into property in New Jersey or Connecticut?
- Yes, federal rules allow cross-state exchanges; confirm each state’s reporting, withholding, and transfer tax requirements with your advisors.
How long must I hold the replacement property?
- There is no fixed federal minimum; it must be held for investment or business use. Very short holds can draw scrutiny, and related-party deals have a specific two-year rule.
Can related parties be involved in a 1031 exchange?
- Yes, but special rules apply. Transfers within two years can trigger recognition unless safe harbors are met, so involve experienced counsel early.
