1031 exchange in
New Jersey.

Does New Jersey follow federal 1031 rules?

New Jersey conforms to federal Section 1031 for real property. The procedural complication is the GIT/REP regime: non-resident sellers must file Form GIT/REP-3 at closing to claim the 1031 exemption from estimated income tax withholding, or the buyer (through the closing agent) withholds the greater of 2% of consideration or 10.75% of estimated gain.

New Jersey capital gains tax structure

New Jersey taxes capital gains as ordinary income with a top marginal rate of 10.75% on income over $1M (2026). No preferential long-term rate, no inflation indexing.

NJ runs a graduated bracket structure topping at 10.75% on income over $1M — one of the highest marginal rates in the country, applied to capital gains as ordinary income with no long-term preference. Capital gains are reported on the NJ-1040 Schedule B. NJ does not allow a federal-tax-paid deduction. Estimated payments are due quarterly when liability exceeds $400. The state has aggressive property tax appeal practice — every commercial buyer should plan to appeal the post-sale assessment in year one or two.

Federal tax treatment of a successful 1031 is deferral of capital gain and unrecaptured Section 1250 depreciation recapture (federally taxed at a maximum 25% when eventually recognized). New Jersey's state treatment sits on top of those federal rates.

Non-resident withholding in New Jersey

NJ requires non-resident sellers to file Form GIT/REP-3 (Seller's Residency Certification/Exemption) at closing to claim a 1031 exemption from estimated income tax. Without GIT/REP-3, the seller files GIT/REP-1 and pays an estimated tax of the greater of 2% of consideration or 10.75% of the estimated gain at recording. Box 7 on GIT/REP-3 is the 1031 exemption box; partial exemptions (boot received) require filing GIT/REP-1 on the non-exempt portion. The Realty Transfer Fee (RTF) exemptions do not flow through to the GIT withholding regime — they are independent.

Common 1031 replacement strategies in New Jersey

Newark and Jersey City multifamily is the institutional 1031 magnet — Hudson County waterfront product trades sub-5% caps on Class A, while Newark Class B sits in the 6.0-7.0% range with real value-add narrative. The NJ Turnpike and I-78 industrial corridor (Exits 7A through 12) is one of the most-bid logistics markets in the country; credit-tenant Class A industrial sits 5.0-5.75%. Trenton is a steady-government-tenant office and small-bay industrial market; New Brunswick rides Rutgers and Johnson & Johnson's pharma footprint. The 2025 Mansion Tax overhaul has materially changed how NJ 1031 buyers structure deals over $2M — entity-level controlling interest transfer structures used to be a workaround, but the CITT was rewritten in lockstep with the Mansion Tax.

Top New Jersey CRE markets for 1031 buyers

Newark

Newark Class B multifamily trades 6.0-7.0% on stabilized product, with the value-add story tied to slow-moving but real rent growth in the Ironbound and downtown submarkets. The Prudential, Audible, and Rutgers-Newark anchor tenants give the office market more credit-tenant depth than most secondary Northeast markets, but suburban Essex office is distressed. The post-2025 Mansion Tax rewrite hits Newark commercial harder than most NJ markets given the deal-size distribution.

Jersey City

Hudson County waterfront is the closest thing NJ has to a coastal-trophy market — Class A multifamily on the Gold Coast trades sub-5% caps, with rent levels that have absorbed the post-2022 reset better than the broader Northeast. The post-Goldman, post-FinTech tenant story is real but stabilizing. Suburban Jersey City and Hudson County backfills (Bayonne, Union City) are 5.5-6.5% Class B multifamily — competitive with Brooklyn and Queens on a yield basis.

Trenton

Steady state-government and federal-tenant office, with NNN retail and small-bay industrial dominating transactional volume. Cap rates 7.0-8.0% on stabilized retail and flex; multifamily is Class B/C primarily and trades 7.5-9.0%. This is a yield market, not a growth thesis. The state government tenant base provides absolute stability on the office side that most secondary markets lack.

New Brunswick

Rutgers and Johnson & Johnson anchor the demand story. Multifamily Class B trades 5.75-6.5% in the immediate university footprint with real demand from grad/medical-student rentership. Pharma and healthcare lab/office is its own institutional asset class — Class A trades sub-6% when something lists, which is rare. The Princeton corridor pulls some of the same institutional capital and trades tighter still.

Local counsel, recording, and filing in New Jersey

NJ closings always involve a NJ-licensed attorney; this is non-negotiable on the commercial side. The closing agent files the GIT/REP forms and remits any required withholding through the county recording process. The deed will not record without either a properly executed GIT/REP-3 (exemption) or proof of withholding payment. Title insurance rates are not state-regulated — shop. Recording is by county (21 counties), and Bergen, Hudson, Essex, and Middlesex have the highest commercial volume.

Recent developments in New Jersey

P.L. 2025, c. 69 (effective July 10, 2025) restructured the Mansion Tax and Controlling Interest Transfer Tax for Class 4A commercial property. The flat 1% over $1M was replaced with a graduated schedule reaching 3.5% on consideration above $3.5M. The legal incidence shifted from purchaser to seller. For any NJ 1031 with a contract executed on or after July 10, 2025 (with a transition window through November 15, 2025 for previously-executed contracts), this is the single largest closing cost change for commercial sellers in a generation. Underwrite accordingly.

Common mistakes in New Jersey 1031 exchanges

• Filing GIT/REP-1 instead of GIT/REP-3 by mistake. GIT/REP-1 triggers the 2% / 10.75% withholding. GIT/REP-3 is the exemption form for residents AND for 1031 exchanges. Out-of-state QIs and CPAs sometimes default to GIT/REP-1 thinking it is the standard form — the seller gets 2% of consideration held until they file the NJ-1040NR to recover it. The right form is GIT/REP-3, box 7 (1031 exchange), with the value of like-kind property received disclosed.
• Ignoring the post-July-2025 Mansion Tax rewrite. Pre-July 2025, the Mansion Tax was a flat 1% on commercial Class 4A over $1M. Effective July 10, 2025, it climbs on a graduated schedule to 3.5% on consideration over $3.5M, and the legal incidence shifted from buyer to seller. Underwriting a 2026 NJ commercial deal off pre-2025 transaction costs will leave you 200+ bps short on the seller's net proceeds — which kills the math on a 1031 swap that was supposed to net out flat.
• Skipping the property tax appeal in year one. NJ assesses commercial property at fractional value based on county equalization ratios that move year to year. Post-sale assessments often reset upward in ways that don't reflect the actual market — and NJ has the most active and successful property-tax-appeal bar in the country. If your underwriting assumes the existing tax line and you don't appeal, you are leaving 5-15% of NOI on the table on a typical Class B asset.

What to do if you're starting a New Jersey-source 1031

1. Engage a Qualified Intermediary before the downleg closes. Your QI cannot be a disqualified person (attorney, CPA, or real estate agent who has represented you in the last two years).
2. Confirm state conformance and any clawback or withholding filings with a New Jersey-licensed CPA.
3. Identify replacement property within 45 days in writing, delivered to your QI, under the Three-Property Rule or one of the alternative identification rules.
4. Close on replacement within 180 days of the downleg closing or by your federal tax-return due date (with extensions), whichever is earlier.
5. File Form 8824 with your federal return reporting the exchange. File any required New Jersey state forms for the year, including any clawback or withholding-exemption filings.

FAQ: 1031 exchanges in New Jersey

Which GIT/REP form do I file for a 1031 exchange in New Jersey?

GIT/REP-3, Seller's Residency Certification/Exemption, with box 7 checked for the 1031 exchange. You disclose the value of the like-kind property received. If any boot is received (cash, debt relief, non-like-kind property), you also file GIT/REP-1 on the non-exempt portion and remit estimated tax of the greater of 2% of the non-exempt consideration or 10.75% of the gain on the boot.

Does the 2025 Mansion Tax change apply to commercial 1031 exchanges?

Yes. The Mansion Tax (Realty Transfer Fee surcharge) on Class 4A commercial property is now graduated up to 3.5% on consideration over $3.5M, effective for contracts executed on or after July 10, 2025. The legal incidence is on the seller. There is no 1031 exemption. Both legs of an NJ-NJ exchange face the tax independently.

How does the NJ Controlling Interest Transfer Tax affect entity-level 1031 structures?

The CITT was rewritten in lockstep with the Mansion Tax in 2025 and now follows the same graduated rate schedule on transfers of controlling interests in entities that own Class 4A property over $1M. The historical structure of selling LLC interests instead of fee simple to avoid the 1% Mansion Tax is no longer a clean workaround — the CITT now matches the Mansion Tax rate, and the deferred-gain rules under federal 1031 still apply at the partner level.

Should I challenge the property tax assessment after a New Jersey 1031 acquisition?

Almost always yes. NJ has 21 county boards of taxation and the NJ Tax Court for appeals; the bar is deep, the deadlines are tight (April 1 for most municipalities), and successful appeals are common because assessments and equalization ratios drift. Build the appeal cost into your year-one underwriting and target a 5-15% NOI improvement.

Can I 1031 from a New Jersey property into a New York property without state issues?

Federally clean, state-side messy. NJ does not have a clawback, so deferred NJ gain is not pursued out of state. NY requires you to file IT-2663 with box 4B checked on the NY-side acquisition. Both states have their own non-resident withholding regimes — you exit GIT/REP-3 on the NJ side and file IT-2663 on the NY side. Use a QI familiar with both forms, and be sure your NJ-side closing attorney knows the NY-side timing.

Are New Jersey property tax payments deductible against the gain on a 1031 exchange?

No — property tax is an operating expense, not a basis adjustment. It does not reduce gain on sale. What it does affect is your effective cap rate during the hold and your eventual sale price (lower NOI = lower price). The basis math on a 1031 is federal; NJ conforms, so the same federal basis carries over to your NJ-side return.