1031 & Inheritance Tax

1031 Exchanges
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1031 & Inheritance Tax

Natalka DobloskyBusiness Member
Realtor · NJ · Member since 2025 · 13 posts · 5 votes

Can I avoid paying inheritance tax in NJ with a 1031 on a residential property sale?

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  • William ThompsonBusiness Member
    Accountant · Williamstown, NJ · Member since 2025 · 320 posts · 176 votes
    1y
    Quote from @Natalka Doblosky:

    Can I avoid paying inheritance tax in NJ with a 1031 on a residential property sale?


    Important distinction here: a 1031 exchange can defer capital gains tax on the sale of an investment property, but it doesn’t eliminate or avoid inheritance/estate tax in New Jersey. Those are two different sets of rules. If you’re dealing with an inherited property, step-up in basis and NJ inheritance tax rules will be bigger factors than a 1031. The right planning can help, but a straight 1031 won’t remove the inheritance tax obligation.
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    • Natalka DobloskyBusiness Member
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      Realtor · NJ · Member since 2025 · 13 posts · 5 votes
      1y
      Quote from @William Thompson:
      Quote from @Natalka Doblosky:

      Can I avoid paying inheritance tax in NJ with a 1031 on a residential property sale?


       Thank you William, that really is unfortunate!

      Important distinction here: a 1031 exchange can defer capital gains tax on the sale of an investment property, but it doesn’t eliminate or avoid inheritance/estate tax in New Jersey. Those are two different sets of rules. If you’re dealing with an inherited property, step-up in basis and NJ inheritance tax rules will be bigger factors than a 1031. The right planning can help, but a straight 1031 won’t remove the inheritance tax obligation.

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  • Dave FosterBusiness Member
    Qualified Intermediary for 1031 Exchanges · St. Petersburg, FL · Member since 2013 · 9k+ posts · 9k+ votes
    1y

    @William Thompson

    @William Thompson is exactly right. A 1031 exchange only pertains to the deferral of tax upon the sale of an investment property. 

    When you inherit a property, it's received at a stepped-up basis, meaning you would only pay tax based on the increase in value from the date of inheritance. 

    Depending on when you inherited the property, it might not even be necessary to do a 1031 exchange, depending on how long you've had it. Doing a 1031 exchange would indefinitely defer. All taxes on gain and depreciation recapture.

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  • Natalka DobloskyBusiness Member
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    Realtor · NJ · Member since 2025 · 13 posts · 5 votes
    1y

    Hello Dave, appreciate your explanation & 1031 advice. This is a topic I need to learn more about. Thank you! 

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