1031 Exchange in Oregon
Oregon conforms to federal 1031 rules, so a properly structured exchange defers Oregon tax on the same timeline as federal tax. But Oregon has a clawback: under ORS 316.738, when you exchange Oregon property into out-of-state replacement property, the state tracks the deferred Oregon gain and adds it back to taxable income when that gain is eventually recognized. You report and track the exchange on Form OR-24, filed the year of the exchange and annually until disposition. Oregon has no general sales tax and no statewide real estate transfer tax.
Fast Facts
- State Income Tax on Capital Gains
- Oregon taxes capital gains as ordinary income at its graduated personal income tax rates, which top out at 9.9%. There is no separate, lower capital-gains rate.
- Conforms to Federal 1031
- Yes. Oregon follows the federal like-kind exchange rules, so a valid federal 1031 deferral is generally recognized for Oregon tax on the same timeline.
- Clawback Rule
- Yes. Under ORS 316.738, deferred gain on Oregon property exchanged into out-of-state replacement property is added back to Oregon taxable income when the gain is later recognized.
- Non-Resident Withholding
- Oregon requires an authorized agent (escrow/title) to withhold on real property conveyances by out-of-state transferors, but a 1031 exchange routed through a Qualified Intermediary is generally not subject to withholding except on any boot paid to the transferor.
- Transfer Tax & Sales Tax
- Oregon has no general statewide sales tax and prohibits new local real property transfer taxes (ORS 306.815), with a limited grandfather exception for taxes in effect before March 31, 1997.
Why Oregon Is Different: The Clawback Rule
Most states that conform to Section 1031 simply let the deferral ride and tax the gain later, if and when it is recognized on a taxable Oregon return. Oregon adds an extra layer for one specific fact pattern: an exchange of Oregon real property into out-of-state replacement property.
Oregon fully honors the deferral at the time of the exchange, so you do not pay Oregon tax when you close the exchange. What Oregon does not do is give up its claim to the gain that accrued while the property was in Oregon. Under ORS 316.738, when the acquired out-of-state property is later sold (or otherwise disposed of) in a transaction where gain is recognized for federal purposes but was not taken into account for Oregon purposes, the statute requires that the deferred amount be added back to federal taxable income for Oregon. In the statute’s own terms, the add-back is measured by the difference between the property’s adjusted basis and the lesser of its fair market value at specified dates.
To make this enforceable, ORS 316.738 authorizes the Department of Revenue to require an annual report on out-of-state property acquired in a 1031 (or 1033) exchange. Oregon implements this through Form OR-24 (Oregon Like-Kind Exchanges/Involuntary Conversions), which is filed for the year of the exchange and then annually until the deferred gain is finally recognized. In short: the deferral is real, but Oregon keeps a running tab, and the bill comes due when you cash out — even if you have long since moved your capital to another state. This is why Oregon investors planning a cross-state exchange should model the eventual Oregon add-back into their long-term tax picture, not just the federal deferral.
Legal and Tax Considerations
State Income Tax on Capital Gains
Taxed as ordinary income at Oregon's graduated rates, topping out at 9.9%. No separate capital-gains rate.
Conforms to Federal 1031
Yes. Oregon recognizes the federal like-kind exchange deferral on the same timeline for Oregon tax purposes.
Clawback (ORS 316.738)
Deferred gain on Oregon property exchanged into out-of-state property is added back to Oregon taxable income when recognized.
Non-Resident Withholding
Withholding on real property conveyances by out-of-state transferors is generally not triggered for a 1031 exchange through a QI, except on boot distributed to the transferor.
Required Documentation
- Federal Form 8824 (Like-Kind Exchanges)
- Oregon Form OR-24 (Oregon Like-Kind Exchanges/Involuntary Conversions) — filed the year of the exchange and annually until disposition
- Qualified Intermediary exchange agreement and assignment documents
- Complete closing/settlement statements for both the relinquished and replacement properties
Clawback Rule
Yes — ORS 316.738. Deferred gain on Oregon property exchanged into out-of-state replacement property is added back to Oregon taxable income when recognized. Track annually on Form OR-24.
Official References
- ORS 316.738 — Modification of taxable income when deferred gain is recognized on out-of-state disposition
- Oregon Form OR-24 Instructions (Like-Kind Exchanges/Involuntary Conversions)
- Oregon Department of Revenue — Personal Income Tax
- OAR 150-314-0040 — Withholding on Real Property Conveyances
- ORS 306.815 — Tax on transfer of real property prohibited; exceptions
Oregon Tax Rate and Sales Tax Context
Oregon does not apply a separate, preferential rate to capital gains. Gain from selling investment real estate is folded into ordinary taxable income and taxed at Oregon’s graduated personal income tax rates, which reach a top marginal rate of 9.9% at the higher income levels shown in the state’s rate charts. Because that 9.9% top rate is among the highest state income tax rates in the country, the value of deferring Oregon tax through a 1031 exchange can be substantial — and it is exactly that value the clawback rule is designed to eventually recapture on cross-state exchanges.
On the transaction side, Oregon is unusually light: the state has no general statewide sales tax, and the Department of Revenue states plainly that Oregon “doesn’t have a general sales tax or a transaction tax.” Oregon law also prohibits cities and counties from imposing new real property transfer taxes under ORS 306.815, subject to a narrow grandfather exception for a transfer tax that was in effect and operative before March 31, 1997. The practical result is that Oregon investors typically face far lower friction costs at closing than investors in states with meaningful transfer or documentary stamp taxes — recording fees still apply, but there is no broad-based deed transfer tax on most Oregon conveyances.
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 Oregon property. You cannot take actual or constructive receipt of the sale proceeds — the QI holds the funds. Routing an Oregon sale through a QI also keeps a like-kind exchange out of Oregon's real property conveyance withholding, except on any boot paid out to you.
- 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, and because Oregon property is involved, plan to file Oregon Form OR-24 to document the exchange.
- 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 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
File Federal and Oregon Reporting — and Track the Clawback
Report the exchange on federal Form 8824 and on your Oregon return using Form OR-24. If your replacement property is outside Oregon, keep filing Form OR-24 annually until the deferred gain is recognized, because ORS 316.738 requires Oregon to add that gain back when you eventually dispose of the out-of-state property.
Timeline Calculator
Enter the closing date of your relinquished property to calculate your 1031 exchange deadlines:
Frequently Asked Questions
Yes. Oregon recognizes the federal like-kind exchange rules, so a properly structured 1031 exchange defers Oregon income tax on the same timeline as federal tax. The key wrinkle is that if you exchange Oregon property into out-of-state replacement property, Oregon tracks the deferred gain and recaptures it later under its clawback rule (ORS 316.738).
Under ORS 316.738, when you exchange Oregon real property for replacement property located outside Oregon, Oregon defers the gain at the time of the exchange but does not give up its claim to it. When the out-of-state property is later sold in a transaction where gain is recognized for federal purposes but was not taken into account for Oregon purposes, the deferred amount is added back to Oregon taxable income. You track this on Form OR-24, filed for the year of the exchange and annually until the gain is recognized.
You file federal Form 8824 with your federal return. For Oregon, you file Form OR-24 (Oregon Like-Kind Exchanges/Involuntary Conversions). Oregon requires Form OR-24 for the tax year of the exchange and then annually thereafter until the deferred gain or loss is finally recognized, which is how the state enforces the ORS 316.738 clawback.
Oregon taxes capital gains as ordinary income at its graduated personal income tax rates, which top out at 9.9%. Oregon does not have a separate, lower capital-gains rate, so any gain that is recognized — including boot in a partial exchange or gain from a failed exchange — is taxed at the applicable ordinary rate. Check the Oregon Department of Revenue rate charts for the current brackets.
Oregon has no general statewide real estate transfer tax and prohibits cities and counties from imposing new transfer taxes under ORS 306.815, with a limited grandfather exception for a tax in effect before March 31, 1997. Oregon also has no general sales tax. Standard county recording fees still apply to deeds, but there is no broad-based deed transfer tax on most Oregon conveyances.
Related Guides
- What Is a 1031 Exchange? — the complete federal framework, deadlines, and rules
- 1031 Exchange by State — compare Oregon with other states’ rules and clawback provisions
- Albany-Lebanon, OR
- Bend-Redmond, OR
- Corvallis, OR
- Eugene, OR
References
Official References
- ORS 316.738 — Modification of taxable income when deferred gain is recognized on out-of-state disposition
- Oregon Form OR-24 Instructions (Like-Kind Exchanges/Involuntary Conversions)
- Oregon Department of Revenue — Personal Income Tax
- OAR 150-314-0040 — Withholding on Real Property Conveyances
- ORS 306.815 — Tax on transfer of real property prohibited; exceptions
- 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.