1031 Exchange in New Mexico
New Mexico conforms to federal 1031 rules, so a properly structured like-kind exchange defers New Mexico income tax on the same timeline as federal tax. New Mexico's personal income tax begins with your federal adjusted gross income, which already reflects the federal deferral, and the state has no separate clawback statute that adds deferred gain back when you exchange into out-of-state property. When gain is eventually recognized, New Mexico taxes it as ordinary income at graduated rates topping out at 5.9%. New Mexico imposes no state real estate transfer, deed, or documentary-stamp tax.
Fast Facts
- State Income Tax on Capital Gains
- New Mexico taxes capital gains as ordinary income at its graduated personal income tax rates, which top out at 5.9% for tax year 2025. There is no separate capital-gains rate, though a limited net-capital-gain deduction applies (see below).
- Conforms to Federal 1031
- Yes. New Mexico's income tax starts from federal adjusted gross income, so a valid federal like-kind exchange deferral flows through to New Mexico on the same timeline.
- Clawback Rule
- No. New Mexico has no statute that recaptures deferred gain when you exchange New Mexico property into out-of-state replacement property. Gain is taxed if and when it is recognized on a New Mexico return.
- Non-Resident Withholding
- New Mexico does not impose a special withholding tax on individual sellers of real estate at closing. (Pass-through entities have separate withholding rules for nonresident owners.)
- Transfer Tax & Sales Tax
- New Mexico imposes no state real estate transfer, deed, or documentary-stamp tax. It levies a gross receipts tax rather than a conventional sales tax; standard county recording fees still apply.
Why New Mexico Is Straightforward: Conformity and No Clawback
New Mexico’s personal income tax is built on top of your federal return. Under the state’s individual income tax, “base income” begins with your federal adjusted gross income (FAGI), and New Mexico adjustments are then made on Form PIT-1 and Schedule PIT-ADJ. Because a properly completed federal 1031 exchange means the deferred gain never enters your federal AGI in the year of the exchange, it likewise does not enter your New Mexico taxable income that year. That is the mechanism by which New Mexico “conforms” — there is no separate New Mexico election or approval for a like-kind exchange.
Just as importantly, New Mexico has no clawback statute. Some states (for example, Oregon and California) track deferred gain that accrued in-state and add it back to state taxable income when you eventually sell out-of-state replacement property, even years later. New Mexico does not do this. Once your gain is validly deferred, New Mexico simply taxes it if and when it is recognized on a New Mexico return — there is no ongoing state-specific reporting form that follows the gain across state lines. For a New Mexico investor exchanging into property in another state, this removes a layer of long-term state tax complexity that exists elsewhere.
Legal and Tax Considerations
State Income Tax on Capital Gains
Taxed as ordinary income at New Mexico's graduated rates, topping out at 5.9% (tax year 2025). No separate capital-gains rate.
Conforms to Federal 1031
Yes. New Mexico begins with federal adjusted gross income, so the federal deferral flows through on the same timeline.
Net Capital Gain Deduction
New Mexico allows a limited net-capital-gain deduction under NMSA 1978 Section 7-2-34. Verify the current amount on the state's PIT-ADJ instructions before relying on it.
Clawback
None. New Mexico has no add-back for out-of-state exchanges; gain is taxed only if and when recognized on a New Mexico return.
Required Documentation
- Federal Form 8824 (Like-Kind Exchanges) filed with your federal return
- New Mexico Form PIT-1 with Schedule PIT-ADJ (adjustments) and PIT-B if you have income from more than one state
- Qualified Intermediary exchange agreement and assignment documents
- Complete closing/settlement statements for both the relinquished and replacement properties
Clawback Rule
None
New Mexico Tax Rate and Capital-Gain Deduction
New Mexico does not apply a separate, preferential flat rate to capital gains. Gain from selling investment real estate is folded into ordinary taxable income and taxed at New Mexico’s graduated personal income tax rates. For tax year 2025, New Mexico restructured its brackets (under 2024 legislation, HB 252), moving to a six-bracket schedule with a bottom rate of 1.5% and a top marginal rate of 5.9%. Always confirm the bracket that applies to your income on the Taxation & Revenue Department’s rate page, since thresholds and brackets can change year to year.
New Mexico does provide a limited net-capital-gain deduction under NMSA 1978 Section 7-2-34, claimed on Schedule PIT-ADJ. This deduction was amended by 2024 legislation effective for the 2025 tax year, and the amounts and eligibility (including a distinct treatment for gain from the sale of a New Mexico business) differ from prior years. Because this figure changed recently and the exact mechanics depend on your situation, we do not quote a single number here — check the current-year PIT-ADJ instructions or ask your tax professional for the amount that applies to you. This deduction only matters for gain that is actually recognized; gain that stays deferred inside a valid 1031 exchange is not being taxed in the first place.
On the transaction side, New Mexico is light. The state imposes no real estate transfer tax, no deed tax, and no documentary-stamp tax on conveyances. New Mexico uses a gross receipts tax rather than a conventional retail sales tax, and a casual sale of real property by an owner is generally not a gross-receipts-taxable event for the seller (though services connected to a sale, such as brokerage commissions, can carry gross receipts tax). The practical result is that New Mexico investors typically face lower closing-time transfer friction than investors in states with meaningful transfer or documentary-stamp taxes — standard county recording fees still apply.
Step-by-Step Process
- 1
Engage a Qualified Intermediary Before Closing
For a delayed exchange, you must set up a Qualified Intermediary (QI) before you close on the relinquished New Mexico property. You cannot take actual or constructive receipt of the sale proceeds — the QI holds the funds until they are used to acquire the replacement property.
- 2
Sell the Relinquished Property
Close the sale of your relinquished property with the QI receiving the proceeds. Report the disposition on federal Form 8824. Because New Mexico begins with your federal AGI, the deferral carries through to your New Mexico return automatically.
- 3
Identify Replacement Property Within 45 Days
You have 45 calendar days from the sale of the relinquished property to formally identify potential replacement property in writing, following the federal identification rules (such as the three-property rule or the 200% rule).
- 4
Close on Replacement Property Within 180 Days
You must acquire the replacement property within 180 calendar days of the sale (or your tax-return due date including extensions, if earlier). Only real property held for investment or business use qualifies under post-2017 federal law.
- 5
Report on Your Federal and New Mexico Returns
Report the exchange on federal Form 8824, then file your New Mexico return (Form PIT-1 with Schedule PIT-ADJ, and PIT-B if you have multi-state income). New Mexico has no separate like-kind exchange tracking form and no clawback, so once the deferral is valid federally there is no additional annual state add-back to monitor.
Timeline Calculator
Enter the closing date of your relinquished property to calculate your 1031 exchange deadlines:
Frequently Asked Questions
Yes. New Mexico's personal income tax begins with your federal adjusted gross income, so a properly structured federal like-kind exchange defers New Mexico income tax on the same timeline as federal tax. There is no separate New Mexico election or approval required for a 1031 exchange.
No. Unlike states such as Oregon and California, New Mexico has no statute that tracks deferred in-state gain and adds it back when you exchange New Mexico property into out-of-state replacement property. Deferred gain is simply taxed if and when it is recognized on a New Mexico return. There is no ongoing state-specific reporting form that follows the gain across state lines.
New Mexico taxes capital gains as ordinary income at its graduated personal income tax rates, which top out at 5.9% for tax year 2025. Any gain that is recognized — including boot in a partial exchange or gain from a failed exchange — is taxed at the applicable ordinary rate. New Mexico also allows a limited net-capital-gain deduction under NMSA 1978 Section 7-2-34, claimed on Schedule PIT-ADJ; confirm the current amount and eligibility in the state's PIT-ADJ instructions.
No. New Mexico imposes no state real estate transfer tax, deed tax, or documentary-stamp tax on conveyances. The state uses a gross receipts tax rather than a conventional sales tax, and a casual sale of real property by an owner is generally not a gross-receipts-taxable event for the seller. Standard county recording fees still apply to recording the deed.
There is no New Mexico-specific like-kind exchange form. You file federal Form 8824 with your federal return, and because New Mexico starts from federal adjusted gross income, the deferral flows through to your New Mexico Form PIT-1 automatically. If you have income sourced to more than one state, you may also file Schedule PIT-B to allocate and apportion income.
Related Guides
- What Is a 1031 Exchange? — the complete federal framework, deadlines, and rules
- 1031 Exchange by State — compare New Mexico with other states’ rules and clawback provisions
- Albuquerque, NM
- Farmington, NM
References
Official References
- New Mexico Taxation & Revenue — Personal Income Tax Rates
- New Mexico Taxation & Revenue — Personal Income Tax Information & Forms
- NMSA 1978 Section 7-2-34 — Deduction; net capital gain income
- IRS Form 8824 — Like-Kind Exchanges
This information is for educational purposes only and is not legal or tax advice. Consult with qualified professionals regarding your specific situation.