Do all states recognise a 1031 exchange?

Yes. Every state with a broad income tax now defers the gain alongside the federal deferral. Pennsylvania was the last holdout and conformed for exchanges beginning in 2023. Recognising the exchange is not the same as leaving you alone, though — a state can defer the gain and still withhold at closing, still require annual filings, and still reclaim the tax when you eventually sell.

Why was money withheld at my closing if I did a 1031 exchange?

Roughly fifteen states require the closing agent to withhold estimated tax when a non-resident sells property there. A properly documented exchange usually exempts you, but only if the exemption paperwork is filed on time — some states want it days or weeks before closing, not after. Miss the window and the money comes out anyway, and you recover it by filing for a refund, which defeats the point of deferring.

What is a state clawback on a 1031 exchange?

A handful of states track gain that accrued on property inside their borders and tax it when the gain is finally recognised — even if by then both you and the replacement property are somewhere else. California, Oregon, Montana and Massachusetts do this. It is why an exchange out of one of those states is a deferral rather than an escape.

Does moving to a no-income-tax state erase the deferred gain?

Not by itself. Buying in Texas or Florida means no state income tax on the new property's income and no tax on its future appreciation. It does not undo what a clawback state is already tracking from the property you left. Both things can be true at once, which is why the direction of the move matters as much as the destination.

1031 Exchange Rules by State: Withholding, Reporting & Clawback

The Three Things

Tap the state you are selling in.

Every state with an income tax now defers the gain alongside the federal deferral — Pennsylvania was the last holdout and joined for exchanges beginning in 2023. But deferring the gain and leaving you alone are two different things.

Withholding at closing The closing agent holds back estimated tax when a non-resident sells. Exempt with the right form — filed on time.

A filing that outlives the sale An annual return for as long as you hold the replacement property. Miss one and the state can assess immediately.

Clawback The state tracks gain that accrued inside its borders and taxes it whenever you finally sell — wherever you live by then.

Select the state you are selling in

No state income tax One rule attached Two rules All three Nothing on record

Tap a state above to see what it does at closing, what it makes you file, and whether it comes back for the gain.

What To Actually Check

Four questions, before the closing date.

Which state is the property in, and am I a resident of it? Withholding almost always keys off non-residency, not off the exchange.
Who is filing the exemption, and by when? Some states want the form at closing. Others want it a week or more ahead. This is the single most common way a clean exchange still loses cash.
Does this state expect to hear from me every year afterwards? If so, that obligation follows the replacement property, not the old one.
Will this state want the gain back when I eventually sell? If yes, the exchange bought time rather than forgiveness — which is still worth having, as long as you know it.

None of this is an argument against exchanging across state lines. Most people should, and the numbers usually favour it. It is an argument for knowing which of the three applies to you before the closing date rather than after, because two of them have deadlines that pass quietly.

Map the states in your sale.

Where the property is, where you live, where you are likely to buy — and which rules that combination triggers. Free, one to one.

Map The States In My Sale →