Using a 1031 Exchange in the Capital Region

Thinking about selling an Albany investment property but want to keep more of your money working for you? A 1031 exchange can help you defer taxes while you reposition into a better asset. If you are weighing options across the Capital Region, timing and local closing details matter. In this guide, you’ll learn how a 1031 works, the nonnegotiable deadlines, New York–specific steps, and how to navigate Albany’s competitive market. Let’s dive in.

What a 1031 exchange does

A 1031 exchange lets you defer taxes when you sell real property held for investment or business use and buy other like‑kind real property. It defers the tax bill; it does not erase it. You carry your basis into the new property and settle taxes when you sell without exchanging later. See the IRS rules in the Instructions for Form 8824 for full details and definitions of like‑kind property.

• Read the IRS overview of like‑kind exchanges in the Instructions for Form 8824: IRS Form 8824 instructions

Deadlines you must meet

Two clocks start when you close on the sale of your relinquished property. Both are calendar days and are strict.

• Identify replacement property in writing within 45 days.
• Close on the replacement property within 180 days or by your tax return due date for that year, if earlier.
• There are no weekend or holiday extensions. Missing either deadline usually kills the exchange. Learn more about the 45‑ and 180‑day rules and identification options in this plain‑English guide: 1031 timeline and ID rules

Keep funds with a Qualified Intermediary

You cannot receive or control the sale proceeds if you want deferral. A Qualified Intermediary (QI) must hold the funds and use them to acquire your replacement property. If you touch the cash, the IRS will likely treat it as taxable. The IRS explains the QI role and prohibited receipt in the Form 8824 instructions.

New York and Albany details to plan for

Transfer and recording taxes at closing

New York imposes a real estate transfer tax, generally 0.4% of consideration. It is due at closing and is not deferred by a 1031. Mortgage recording taxes also apply when a mortgage is recorded in Albany County. Confirm exact amounts with your title company early. See New York’s transfer tax guidance: NY transfer tax overview

Nonresident seller withholding

If you are a nonresident selling New York property, estimated state income tax withholding can be required at closing. In a valid 1031 exchange you can claim an exemption, but you must complete the correct forms at closing, such as Form IT‑2663. Learn more here: New York IT‑2663 overview

Out‑of‑state replacement property is allowed

New York generally follows federal 1031 treatment. You can exchange New York property into another state and still get deferral if you meet federal rules. You still file federal Form 8824 and follow New York reporting.

Exchange structures to consider

Delayed (most common)

You sell first, then identify within 45 days and close within 180 days. This is the standard path for many Albany investors.

Reverse and improvement exchanges

If you must buy before you sell, a reverse exchange can work by parking the new property with a special titleholder. Improvement exchanges can fund upgrades before you take title. Both are more complex and costlier. Learn the basics here: Reverse and improvement exchange overview

Partnership “drop‑and‑swap” update in New York

A June 12, 2025 New York Division of Tax Appeals decision approved an at‑closing drop‑and‑swap on its facts, rejecting a rigid minimum holding period under New York tax law. This may help partnerships that need to divide interests before a 1031, but careful documentation and professional guidance are still essential, and federal treatment may differ. Read a summary: New York drop‑and‑swap decision

Finding replacement property in the Capital Region

Many investors trade into small multifamily, mixed‑use, or commercial assets across Albany County. Some diversify out of state or choose Delaware Statutory Trusts for more passive ownership. Explore common approaches: 1031 property options in New York

Step‑by‑step checklist

• Before listing: confirm your property qualifies as investment or business use. Engage a CPA or tax attorney and select a Qualified Intermediary. Review like‑kind rules and the carryover basis in the IRS 8824 instructions.
• Pre‑closing: sign the QI agreement before the sale closes. Set your identification strategy using the 3‑property, 200% or 95% rules. See a quick primer: 1031 timeline and ID rules
• At sale closing: make sure proceeds go directly to the QI. File New York transfer paperwork (TP‑584) and any required withholding forms for nonresidents, including exemptions for valid exchanges. Reference: NY transfer tax overview
• Identification and purchase: identify within 45 days. Complete inspections, financing, and closing within 180 days. Consider specialized counsel for reverse or improvement exchanges. Learn more: Reverse and improvement exchange overview
• After closing: file federal Form 8824 with your tax return and retain all exchange documents.

Key tax numbers to watch

• Capital gains rates are generally 0%, 15%, or 20%, and high‑income taxpayers may also owe the 3.8% Net Investment Income Tax. See current brackets: Capital gains and NIIT overview
• Depreciation recapture on prior real estate depreciation can be taxed up to 25% when recognized. A 1031 defers this, but it does not erase it. Learn more: IRS Publication 550
• To fully defer gain, buy equal or greater value and replace any debt paid off at sale. Receiving cash or reducing debt can create taxable “boot.” Review mechanics in the IRS 8824 instructions.

Capital Region market snapshot

Recent Capital Region reports show rising prices and tight inventory, which makes sourcing replacements competitive. Start early on financing and identification so you can move fast within the 45‑day window. For regional context, see this overview of 2024 trends: Capital Region housing trends

Let’s plan your move

If you are exchanging between the Capital Region and either Manhattan or the Hudson Valley, you need tight timelines, clear identification, and careful closing work. Our team brings luxury city and country expertise together so you can reposition your portfolio with confidence. For a focused strategy session on how your 1031 can align with opportunities in Manhattan and the Hudson Valley, connect with the Gladstone Karadus Team.

FAQs

What is a 1031 exchange for Albany investors?

• It is a tax‑deferred swap of investment or business‑use real property for other like‑kind real property, following strict IRS rules and timelines; see the IRS Form 8824 instructions.

Can I exchange an Albany rental for a property in another state?

• Yes. New York generally follows federal rules, and interstate exchanges are allowed if you meet the identification and 180‑day closing deadlines under the IRS Form 8824 instructions.

Do New York transfer or mortgage recording taxes go away in a 1031?

• No. Transfer and mortgage recording taxes are due at closing and are not deferred by a 1031; see the NY transfer tax overview.

I am a nonresident selling in Albany. Will I face withholding?

• New York often requires estimated tax withholding at closing for nonresidents, but valid 1031s can qualify for an exemption if you complete the forms at closing; see Form IT‑2663 guidance.

Are drop‑and‑swap partnership structures acceptable in New York?

• A June 12, 2025 New York decision approved an at‑closing drop‑and‑swap on its facts, improving flexibility for partnerships, but careful documentation and advice are essential; see the New York drop‑and‑swap decision.