New Jersey 1031 Exchange: Deadlines, GIT/REP-3, and Filing

A New Jersey 1031 exchange lets you sell investment or business real estate and roll the proceeds into replacement real estate without paying federal capital gains tax, federal depreciation recapture, or New Jersey gross income tax on the gain, provided you follow the Section 1031 rules and New Jersey’s closing paperwork. The state conforms to the federal framework, so a properly structured exchange defers both tax bills at once. Miss a deadline, touch the money, or buy down in value, and the deferral collapses.

Property That Qualifies

Both the property you sell and the property you buy must be real property held for business use or investment.¹ Your primary residence does not qualify. A vacation home with heavy personal use may not qualify either.

The two sides do not have to be the same type of real estate. Vacant land can be exchanged for an apartment building, a warehouse for a strip mall, an office building for a single-family rental. What matters is that both are investment or business property. Since the Tax Cuts and Jobs Act of 2017, only real property is eligible; equipment, vehicles, and other personal property cannot be exchanged on a tax-deferred basis.¹

Both properties must sit inside the United States. You cannot exchange a New Jersey rental for property in another country, but you can exchange it for property in any other state.²

The 45-Day and 180-Day Deadlines

Two clocks start the day you close on the sale of your relinquished property, and both run on calendar days with no extensions for weekends, holidays, or hardship.

Within 45 days, you must identify potential replacement properties in a signed, written notice delivered to someone involved in the exchange, typically your qualified intermediary or the seller of the replacement property.²

Within 180 days of that same starting date, you must close on the replacement property, or by the due date of your tax return for that year including extensions, whichever comes first.¹ This is where investors who sell late in the year get burned. Sell in October without filing a tax return extension, and your April 15 return due date hits before day 180. Filing an extension preserves the full 180-day window.²

How to Identify Replacement Properties

The identification notice has to describe each property unambiguously, with a street address or legal description. “A property in Bergen County” does not count. You also have to stay within one of three identification rules:

The three-property rule: identify up to three potential replacements regardless of total value. This is the simplest and most common approach.
The 200-percent rule: identify more than three only if their combined fair market value does not exceed 200 percent of the sale price of the property you sold.
The 95-percent exception: if you blow past both limits, the identification is still valid only if you actually acquire at least 95 percent of the aggregate value of everything on your list.

Fail all three rules, and the IRS treats the whole transaction as a taxable sale.

Why You Need a Qualified Intermediary

You cannot take possession of the sale proceeds at any point. If the money hits your account, even briefly, the IRS treats it as constructive receipt and the exchange fails. A qualified intermediary holds the funds between closings and uses them to buy the replacement property on your behalf.³

The intermediary has to be in place before the sale of the relinquished property closes. You sign an exchange agreement assigning your rights in the sale to the intermediary, who receives the proceeds at closing and holds them in escrow. When the replacement property closes, the intermediary wires the funds directly to the seller.

The intermediary cannot be anyone who has acted as your agent in the two years before the exchange. That rules out your attorney, accountant, real estate agent, or employee. New Jersey has its own legislation governing exchange facilitators handling transactions involving New Jersey property, placing them in a regulatory framework.⁴ Fees typically run from several hundred to a few thousand dollars depending on the complexity of the deal.

Buy Up, Reinvest All of It

To defer the full gain, the replacement property has to be equal to or greater in value than the relinquished property, and all of the equity has to be reinvested. Anything you receive that is not like-kind real property is called “boot,” and it triggers taxable gain up to the amount of boot received.² The rest of the exchange still qualifies for deferral.

Boot takes several forms. Cash left over after buying a cheaper replacement is the obvious one. Debt relief counts too: if your old property had a $500,000 mortgage and the new one carries only $300,000, the $200,000 reduction is boot. Personal property conveyed with the building, like furniture or equipment, also creates boot.

Trading down in price or equity is the most common way investors accidentally generate a tax bill they thought they were deferring.

The Same-Taxpayer Rule

The entity that sells the relinquished property has to be the entity that buys the replacement. The IRS tracks this by taxpayer identification number, not by the name on the deed. Sell as an individual, and you have to buy as an individual. Form a new partnership or multi-member LLC to take title to the replacement, and the exchange fails because those entities have their own EINs.

The common workaround is a single-member LLC. The IRS treats a single-member LLC as a disregarded entity, so its activity flows through to the sole member’s return. You can sell individually and take title through a single-member LLC, or the reverse, without breaking the rule. Add partners or new members for the replacement, though, and the exchange likely fails. Lock down the entity structure before the 45-day clock starts.

GIT/REP-3 at Closing

When a deed is recorded in New Jersey, the state normally requires an estimated income tax payment from the seller equal to the gain times the state’s top rate of 10.75 percent, with a floor of 2 percent of the total sale price.⁵ In a 1031 exchange, you claim exemption from that payment by filing Form GIT/REP-3 (Seller’s Residency Certification/Exemption) and checking Box 7a, which is the specific designation for like-kind exchanges.⁶

GIT/REP-3 is submitted at closing along with the RTF-1 realty transfer fee form. It does not go to the Division of Taxation separately. Use the current version: as of September 2024, the Division requires the August 2024 revision for all new deeds.⁷

The Realty Transfer Fee Still Applies

New Jersey’s realty transfer fee is owed on the sale whether or not the deal is a 1031 exchange. The fee is graduated by sale price, and for consideration above $1,000,000 the buyer also owes an additional 1 percent fee.⁸ Budget for it. The exchange does not defer it.

Reporting the Exchange on Your Returns

Federally, you report the exchange on Form 8824 (Like-Kind Exchanges) with your tax return for the year the relinquished property sold. The form captures the description of both properties, the transfer and receipt dates, the relationship between the parties, the adjusted basis, any boot received, and the gain deferred.⁹ The exchange also goes on your New Jersey gross income tax return for the same year, and the state and federal filings have to be consistent.

Keep meticulous records of your original purchase price, capital improvements, and depreciation deductions across every exchange. The replacement property inherits the adjusted basis of the property you sold, so your depreciation history carries forward. When the chain eventually ends in a taxable sale, that history determines your recapture.

If the Exchange Falls Apart

If the exchange fails after you have already filed the GIT/REP-3 at closing — because you missed a deadline, could not find a replacement, or the deal collapsed — the full gain from the relinquished property becomes taxable at the federal level in the year of sale.

On the state side, the GIT/REP-3 itself puts you on notice. By checking the exemption box, you accepted the obligation to file a New Jersey gross income tax return and report the gain if the exchange does not ultimately apply. If the deferred exchange is voided entirely, the qualified intermediary has to complete a GIT/REP-1 (Nonresident Seller’s Tax Declaration) and remit an estimated payment of 2 percent of the total consideration.⁶ Both you and the intermediary have reporting obligations when things go wrong.

For partial failures where boot is received, you can either file a GIT/REP-1 with a 2 percent estimated payment on the nonexempt portion at recording, or make an estimated payment directly to the state afterward using Form NJ-1040-ES.⁶

Exchanges With Related Parties

Exchanges between related parties carry extra rules. Related parties include family members (siblings, spouse, ancestors, lineal descendants) and entities in which you hold more than a 50 percent interest. The exchange still qualifies for deferral, but both parties have to hold their respective properties for at least two years after the exchange.¹⁰

If either party sells within that two-year window, the deferred gain snaps back and becomes taxable as of the date of the disposition. Narrow exceptions cover dispositions caused by death or involuntary conversion such as condemnation. The IRS also has a catch-all: if the exchange is part of a series of transactions structured to avoid the purpose of these rules, the entire deferral is disallowed regardless of the holding period.¹⁰

Reverse Exchanges When the Replacement Comes First

Sometimes the right replacement property appears before you have sold the old one. A reverse exchange handles that by parking the replacement with an Exchange Accommodation Titleholder (EAT) until the relinquished property closes. The IRS safe harbor for these arrangements is in Revenue Procedure 2000-37.¹¹

Under the safe harbor, the EAT takes legal title to the replacement while you market and sell your existing property. The same 45-day identification and 180-day exchange deadlines apply, and the EAT cannot hold the parked property for more than 180 days total. A written Qualified Exchange Accommodation Agreement has to be signed within five business days after the EAT takes title and must state that the property is being held to facilitate a 1031 exchange.

Reverse exchanges cost more than standard forward exchanges because of the extra legal documents, separate financing, and higher intermediary fees. In competitive New Jersey markets where desirable properties move quickly, that added cost is often the price of being able to lock in the replacement before selling.

1
Office of the Law Revision Counsel. 26 USC 1031 – Exchange of Real Property Held for Productive Use or Investment
2
Internal Revenue Service. Like-Kind Exchanges Under IRC Section 1031
3
Internal Revenue Service. Miscellaneous Qualified Intermediary Information
4
New Jersey Legislature. New Jersey Legislature – Assembly No. 3438
5
State of New Jersey. FAQs on GIT Forms Requirements for Sale of Real Property
6
State of New Jersey. GIT/REP-3 Seller’s Residency Certification/Exemption
7
State of New Jersey. Updated Versions of Forms GIT/REP-3, GIT/REP-4, and A-3128
8
State of New Jersey. Realty Transfer Fee FAQs
9
Internal Revenue Service. Instructions for Form 8824 – Like-Kind Exchanges
10
Office of the Law Revision Counsel. 26 USC 1031 – Exchange of Real Property Held for Productive Use or Investment
11
Internal Revenue Service. Revenue Procedure 2000-37