New Jersey follows federal 1031 exchange rules with state capital gains tax rates ranging from 1.4% to 10.75%, and requires specific compliance with the state's Bulk Sales Law for non-resident investors.
This information is for educational purposes only and is not legal or tax advice. Consult with qualified professionals regarding your specific situation.
Important regulations and tax implications for your exchange
1.4% - 10.75% (taxed as ordinary income)
Yes
Required for all property sales
Applies to non-residents
Varies by property value and type
Follows federal guidelines with additional state forms
• Federal Form 8824 • New Jersey Form GIT/REP-3 (for non-residents claiming exemption from withholding) • New Jersey Division of Taxation Notification of Sale (Bulk Sales Law compliance) • Complete closing statements for both properties
None
Informational step-by-step guide for your 1031 exchange
Work with a qualified intermediary to handle the exchange funds and documentation. Choose a QI with specific experience in New Jersey real estate transactions and knowledge of the state's Bulk Sales Law and GIT/REP requirements.
Complete the sale of your relinquished property, ensuring all documentation is properly handled by your QI. For New Jersey properties, comply with the Bulk Sales Law and GIT/REP requirements.
Within 45 days of selling your relinquished property, identify potential replacement properties. In New Jersey, consider local economic factors, property tax rates, and regional differences when identifying properties.
Conduct thorough due diligence on your identified replacement properties. In New Jersey, pay special attention to property tax rates, which vary significantly by municipality, and any local regulations that might affect the property's value or income potential.
Complete the purchase of your replacement property within 180 days of selling your relinquished property. Ensure all New Jersey-specific documentation is properly filed and processed.
Report your 1031 exchange on both your federal tax return (Form 8824) and New Jersey state tax return. Even though the exchange defers taxes, it must still be reported to both tax authorities.
New Jersey's Bulk Sales Law requires notification to the Division of Taxation when selling business assets, including real estate. File Form C-9600 at least 10 business days before closing on both the relinquished and replacement properties if located in New Jersey. Failure to comply can result in the buyer being held liable for the seller's unpaid taxes, which can complicate or derail an exchange.
Non-resident sellers of New Jersey real estate must comply with Gross Income Tax (GIT) and Real Estate Prepayment (REP) requirements. In a 1031 exchange, file Form GIT/REP-3 to claim exemption from withholding. Without this form, the buyer may be required to withhold either 2% of the sales price or 8.97% of the gain on the sale, which can impact exchange funds available for reinvestment.
Consider the significant differences between northern New Jersey (Newark, Jersey City), central New Jersey (New Brunswick, Trenton), southern New Jersey (Camden, Atlantic City), and the Jersey Shore. These regions have distinct market dynamics, price points, and investment characteristics. Northern New Jersey is more influenced by the New York City metro economy, while southern New Jersey is more connected to Philadelphia, and the Jersey Shore has its own seasonal market patterns.
Recent changes and upcoming regulations affecting 1031 exchanges
New Jersey continues to enforce its Bulk Sales Law, requiring notification to the Division of Taxation when selling business assets, including real estate. For 1031 exchanges, this means potential withholding of funds for non-resident investors unless a waiver is obtained.
New Jersey continues to tax capital gains as ordinary income, with rates ranging from 1.4% to 10.75% depending on income level and filing status. These rates apply to gains not deferred through a 1031 exchange.
New Jersey maintains its Gross Income Tax (GIT) and Real Estate Prepayment (REP) requirements for non-residents selling New Jersey real estate. For 1031 exchanges, non-residents must file Form GIT/REP-3 to claim exemption from withholding.
Plan and track your critical exchange deadlines
Enter the closing date of your relinquished property to calculate your 1031 exchange deadlines:
Investment property insights for New Jersey
Multifamily properties in New Jersey offer strong investment potential, particularly in Newark, Jersey City, and other urban centers, driven by population growth, limited housing supply, and strong rental demand.
Industrial properties in New Jersey show exceptional performance, particularly in the Meadowlands and near Port Newark-Elizabeth Marine Terminal, driven by e-commerce growth and logistics demand.
Vacation rental properties in New Jersey offer strong returns, particularly along the Jersey Shore, driven by tourism and second-home demand.
Office properties in New Jersey show mixed performance, with stronger results in transit-oriented locations and medical office buildings.
Real 1031 exchange examples from New Jersey
Current market conditions and future forecasts
Northern New Jersey shows the strongest growth in the state, with Newark experiencing an 11.3% year-over-year price increase, making it one of the major U.S. cities with the highest price increases in 2024. Jersey City continues to benefit from its proximity to Manhattan, with strong demand from commuters and young professionals. The market is characterized by high density, urban amenities, and excellent public transportation.
Central New Jersey shows moderate to strong growth, with New Brunswick experiencing an 11.3% year-over-year price increase, comparable to Newark. The region benefits from its central location, access to both New York City and Philadelphia, and strong presence of pharmaceutical, healthcare, and educational institutions. The market offers a mix of urban and suburban properties, with strong school districts driving demand in many areas.
Southern New Jersey shows more moderate growth compared to northern regions, but offers greater affordability and investment potential. The region benefits from its proximity to Philadelphia, with Camden and its surrounding suburbs showing the strongest performance. Atlantic City continues its recovery, with opportunities in both residential and commercial properties related to tourism and entertainment.
The Jersey Shore shows strong growth, particularly in desirable beach towns. The market benefits from limited land availability, strong tourism, and increasing demand for second homes and vacation rentals. The pandemic accelerated demand for coastal properties, with many buyers seeking both primary residences and investment properties with rental income potential.
Long-term appreciation analysis in New Jersey
Understanding historical property appreciation patterns can help you identify areas with strong long-term growth potential for your 1031 exchange replacement property.
42.8%
78.5%
124.3%
Continued strong appreciation expected, with Newark showing an 11.3% increase in 2024, making it one of the major U.S. cities with the highest price increases
38.6%
72.4%
115.7%
Moderate to strong appreciation expected, with New Brunswick showing an 11.3% increase in 2024, comparable to Newark
32.5%
58.9%
92.4%
Moderate appreciation expected, with stronger growth in areas with good access to Philadelphia
45.3%
83.7%
132.8%
Strong appreciation projected, particularly for properties in desirable beach towns, with seasonal rental income supporting investment returns
Current rental trends and opportunities in New Jersey
Understanding the rental market is crucial when selecting investment properties for your 1031 exchange. This analysis provides insights into current rental conditions across the state.
| Property Type | Avg. Rent | Vacancy Rate | Rent Trend | Cap Rate |
|---|---|---|---|---|
| Luxury Apartments | $2,200 - $3,000 (1BR) | 3.5% | up | 5.0% - 6.0% |
| Class B Apartments | $1,600 - $2,200 (1BR) | 3.0% | up | 6.0% - 7.0% |
| Single Family Homes | $2,500 - $3,500 (3BR) | 2.5% | up | 5.5% - 6.5% |
Northern New Jersey's rental market serves a diverse tenant base, including young professionals, families, and commuters to New York City. The market has significant variation by neighborhood, with luxury rentals concentrated in downtown areas and waterfront developments. Approximately 50% of renters are under 35, and 40% have household incomes above $100,000.
Newark, Jersey City, and several other municipalities have rent control ordinances limiting annual rent increases. Jersey City also has a short-term rental ordinance restricting Airbnb-style rentals in certain buildings and neighborhoods. Eviction processes can be lengthy, particularly in cities with strong tenant protections.
The Northern New Jersey rental market is expected to remain strong due to population growth, job creation, and limited housing supply. New construction is focused on luxury properties in downtown areas and transit-oriented developments. Rent growth is projected to continue at a healthy pace, particularly in areas with good access to public transportation and urban amenities.
| Property Type | Avg. Rent | Vacancy Rate | Rent Trend | Cap Rate |
|---|---|---|---|---|
| Luxury Apartments | $1,800 - $2,500 (1BR) | 4.0% | up | 5.5% - 6.5% |
| Class B Apartments | $1,400 - $1,800 (1BR) | 3.5% | up | 6.5% - 7.5% |
| Single Family Homes | $2,200 - $3,000 (3BR) | 3.0% | up | 6.0% - 7.0% |
Central New Jersey's rental market serves a mix of young professionals, families, students, and commuters to both New York City and Philadelphia. The market is influenced by major employers in pharmaceuticals, healthcare, and education. Approximately 45% of renters are under 35, and 35% have household incomes above $90,000.
Rent control is less common in Central New Jersey compared to Northern New Jersey, though some municipalities have their own ordinances. Eviction processes are generally more straightforward than in Northern New Jersey, though still subject to state tenant protection laws.
The Central New Jersey rental market is expected to remain stable with moderate growth, supported by major employers in pharmaceuticals, healthcare, and education. New construction is focused on transit-oriented developments and mixed-use projects in downtown areas. Rent growth is projected to continue at a moderate pace, with stronger performance in areas with good access to transportation and amenities.
| Property Type | Avg. Rent | Vacancy Rate | Rent Trend | Cap Rate |
|---|---|---|---|---|
| Luxury Apartments | $1,500 - $2,000 (1BR) | 4.5% | up | 6.0% - 7.0% |
| Class B Apartments | $1,100 - $1,500 (1BR) | 4.0% | up | 7.0% - 8.0% |
| Single Family Homes | $1,800 - $2,500 (3BR) | 3.5% | up | 6.5% - 7.5% |
Southern New Jersey's rental market serves a mix of working-class families, young professionals, and commuters to Philadelphia. The market has significant variation by area, with stronger demand in communities with good access to Philadelphia. Approximately 40% of renters are under 35, and 25% have household incomes above $80,000.
Rent control is uncommon in Southern New Jersey, creating a more landlord-friendly environment. Eviction processes are generally more straightforward than in Northern New Jersey, though still subject to state tenant protection laws.
The Southern New Jersey rental market is expected to show moderate growth, supported by relative affordability and access to Philadelphia. New construction is limited, focusing primarily on Camden and communities with good access to Philadelphia. Rent growth is projected to continue at a moderate pace, with stronger performance in areas with good transportation connections to Philadelphia.
| Property Type | Avg. Rent | Vacancy Rate | Rent Trend | Cap Rate |
|---|---|---|---|---|
| Year-Round Rentals | $1,400 - $2,000 (1BR) | 4.0% | up | 6.0% - 7.0% |
| Vacation Rentals | $1,500 - $5,000 per week (seasonal) | 25% annual average (seasonal variation) | up | 6.5% - 8.5% (based on annual income) |
| Single Family Homes | $2,000 - $3,000 (3BR, year-round) | 3.5% | up | 6.0% - 7.0% |
The Jersey Shore rental market serves a mix of year-round residents, seasonal workers, and vacation renters. The market has significant seasonal variation, with peak demand during summer months. Year-round rentals serve local workers, retirees, and remote workers, while vacation rentals serve tourists and second-home owners.
Short-term rental regulations vary by municipality, with some towns imposing restrictions or requiring permits for vacation rentals. Year-round rental regulations are generally less restrictive than in Northern New Jersey, though still subject to state tenant protection laws.
The year-round rental market is expected to remain stable with moderate growth, while the vacation rental market shows strong growth potential due to increasing tourism and remote work trends. Limited new construction supports rent stability in existing properties. These markets offer higher initial yields than Northern New Jersey, though with more seasonal variation.
Key mistakes to avoid in your 1031 exchange
New Jersey's Bulk Sales Law requires notification to the Division of Taxation when selling business assets, including real estate. Failure to comply can result in the buyer being held liable for the seller's unpaid taxes.
File Form C-9600 with the New Jersey Division of Taxation at least 10 business days before closing on both the relinquished and replacement properties if located in New Jersey. Work with a Qualified Intermediary and attorney familiar with New Jersey's Bulk Sales Law to ensure proper compliance and avoid potential delays or liabilities.
Non-resident sellers of New Jersey real estate must comply with Gross Income Tax (GIT) and Real Estate Prepayment (REP) requirements. Failure to properly address these requirements can result in withholding of funds, impacting exchange cash flow.
If you are a non-resident selling New Jersey property, file Form GIT/REP-3 to claim exemption from withholding due to the 1031 exchange. This must be filed at or before closing on the relinquished property. Work with a Qualified Intermediary and attorney familiar with New Jersey's GIT/REP requirements to ensure proper compliance.
New Jersey has relatively high property taxes, with an average effective rate of about 2.21%, among the highest in the nation. This can significantly impact cash flow projections for investment properties.
Research property tax rates in specific municipalities before completing an exchange. Understand that property tax rates vary significantly by town, with some municipalities having rates nearly twice as high as others. Budget for property taxes in your cash flow projections, and consider the impact of potential reassessments after property transfers.
Several New Jersey municipalities, including Newark, Jersey City, and Hoboken, have rent control ordinances limiting annual rent increases. These can impact cash flow projections and investment returns for residential properties.
Research local rent control ordinances before acquiring residential investment properties. Understand the specific limitations on rent increases, which vary by municipality. Consider working with property managers who specialize in rent-controlled properties and are familiar with local regulations. Factor rent control limitations into your cash flow projections and investment analysis.
Common questions about New Jersey 1031 exchanges
Yes, New Jersey taxes capital gains as ordinary income, with rates ranging from 1.4% to 10.75% depending on income level and filing status. While a 1031 exchange defers these taxes, they will eventually be due upon a taxable sale of the replacement property. This makes the tax deferral benefits of 1031 exchanges particularly valuable in New Jersey compared to states with no income tax.
New Jersey's Bulk Sales Law requires notification to the Division of Taxation when selling business assets, including real estate. For 1031 exchanges, this means filing Form C-9600 at least 10 business days before closing on both the relinquished and replacement properties if located in New Jersey. Failure to comply can result in the buyer being held liable for the seller's unpaid taxes, which can complicate or derail an exchange.
Non-resident sellers of New Jersey real estate must comply with Gross Income Tax (GIT) and Real Estate Prepayment (REP) requirements. In a 1031 exchange, non-residents must file Form GIT/REP-3 to claim exemption from withholding. Without this form, the buyer may be required to withhold either 2% of the sales price or 8.97% of the gain on the sale, which can impact exchange funds available for reinvestment.
New Jersey does not have state-specific licensing requirements for Qualified Intermediaries beyond federal guidelines. However, it's still important to work with a reputable QI with experience in New Jersey real estate transactions and knowledge of the state's Bulk Sales Law and GIT/REP requirements.
You need to file federal Form 8824 (Like-Kind Exchanges) with your federal tax return and report the exchange on your New Jersey state tax return. If the relinquished or replacement property is in New Jersey, you must also file Form C-9600 for Bulk Sales Law compliance. Non-resident sellers must file Form GIT/REP-3 to claim exemption from withholding due to the 1031 exchange.
Yes, 1031 exchanges can be used for interstate transactions. However, be aware that New Jersey's Bulk Sales Law will apply to the acquisition of the replacement property in New Jersey, requiring notification to the Division of Taxation. Additionally, if you're a non-resident acquiring New Jersey property, you should understand the potential future implications of GIT/REP requirements when you eventually sell the property.