10 Apr Can I avoid N.J. tax on this investment home sale?

Q. If I sell my investment property in New Jersey, can I avoid New Jersey capital gains taxes if I do a 1031 exchange and invest in another state?
— Owner

A. A 1031 exchange is when a property owner exchanges one investment property for another.

It’s named after the IRS code that created the rule.

New Jersey recognizes like-kind exchanges and you can move your property to another state, said Ken Bagner, a certified public accountant with CLA in Livingston.

“If you are an out-of-state resident, New Jersey may have mandatory withholding on the sale of your property but you can receive those funds back from New Jersey when you file your New Jersey income tax return,” Bagner said.

Bagner said you need to be careful in other states that have clawback provisions for like-kind exchanges, including California, so make sure you check the laws in whatever state you’re considering.

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This story was originally published on April 10, 2023.

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