1031 tax exchange question in Portland, Oregon

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1031 tax exchange question in Portland, Oregon

Matt Hilliard
Rental Property Investor · Nevada City, CA · Member since 2018 · 13 posts · 10 votes

Hello Bigger Pockets family

My wife and I are selling a single-family rental property we’ve owned for 18 years in Portland Oregon. We want to do a 1031 exchange and buy a property outside of Oregon. We’re told by our accountant that we would be on the hook For up to $34,000 in taxes based on the fact that we 1031 exchanged into this property 18 years ago and all the depreciation recapture, etc.

Does anyone have any recommendations on strategies for limiting what Oregon will claim that we owe them after the sale of our property and successful 1031 exchange out of state?

Our proceeds from the sale will be around $150,000 that we will exchange into another property and State and we would have to come up with that $34,000 tax bill from somewhere out of our own pocket during the 2025 tax season

Any help/ tax strategies for avoiding some or are all of this would be much appreciated!

Matt

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

@Matt Hilliard

Thanks for the shout @Bill B.! You would not have to pay state and federal tax or recapture any depreciation until you sold that property without a 1031 exchange. You can do as many exchanges as you want until you decide to cash out or simply die with the tax. At that time, your heirs get a step up in basis, so the tax dies with you.

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  • Dominic Mazzarella
    Investor · Hendersonville, NC · Member since 2016 · 498 posts · 285 votes
    1y
    Quote from @Matt Hilliard:

    Hello Bigger Pockets family

    My wife and I are selling a single-family rental property we’ve owned for 18 years in Portland Oregon. We want to do a 1031 exchange and buy a property outside of Oregon. We’re told by our accountant that we would be on the hook For up to $34,000 in taxes based on the fact that we 1031 exchanged into this property 18 years ago and all the depreciation recapture, etc.

    Does anyone have any recommendations on strategies for limiting what Oregon will claim that we owe them after the sale of our property and successful 1031 exchange out of state?

    Our proceeds from the sale will be around $150,000 that we will exchange into another property and State and we would have to come up with that $34,000 tax bill from somewhere out of our own pocket during the 2025 tax season

    Any help/ tax strategies for avoiding some or are all of this would be much appreciated!

    Matt


    Oregon’s pretty strict with what’s called the “clawback rule.” Even if you 1031 out of state, they’ll still want to collect their share of taxes when you eventually sell, which is where that $34k your CPA mentioned comes in.

    The simplest way to avoid the clawback is to exchange into another Oregon property, though I know that might not fit your goals. Some people also use Delaware Statutory Trusts (DSTs) to keep the deferral going while making it more passive. Otherwise, you may just have to plan for the tax hit if you really want to move your capital out of Oregon.

    It’s worth confirming with a CPA who handles multi-state 1031s, since they can show you exactly what portion is depreciation recapture and if there are any ways to minimize it.

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  • Bill B.
    Investor · Las Vegas, NV · Member since 2013 · 8k+ posts · 10k+ votes
    1y

    I don’t believe most “clawbacks” are due until you eventually sell the property you 1031’d in to. I’m 90% sure you wouldn’t owe the $34k the day you sell the Oregon property but rather the day you sell the new property without doing another 1031. Just keep doing 1031’s until you die and I don’t BELIEVE you will ever owe the $34k. @Dave Foster would know the answer…

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  • Aristotle Kumpis
    Specialist · Long Beach, CA · Member since 2011 · 879 posts · 398 votes
    1y

    When you 1031 exchange, the capital gains that you had from 18 years ago will also be deferred into the new replacement property. At some point when you sell the exchanged property and cash out, then will need to pay those taxes. But the whole point of exchanging is to defer your gains over and over again. California also has a clawback provision, but you don't pay the state taxes unless you sell and cash out and are done exchanging. Not sure if Oregon works the same.

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  • Matt Hilliard
    OP
    Rental Property Investor · Nevada City, CA · Member since 2018 · 13 posts · 10 votes
    1y

    @Aristotle Kumpis

    Thanks so much for your reply, much appreciated!

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  • Matt Hilliard
    OP
    Rental Property Investor · Nevada City, CA · Member since 2018 · 13 posts · 10 votes
    1y

    @Bill B.

    Thanks so much for your reply, I will reach out to Dave Foster to see if he’s willing to comment on my question

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  • Matt Hilliard
    OP
    Rental Property Investor · Nevada City, CA · Member since 2018 · 13 posts · 10 votes
    1y

    @Dominic Mazzarella

    Thanks so much for your reply, much appreciated!

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  • Aaron ZimmermanBusiness Member
    Accountant · Chicago, IL · Member since 2018 · 2k+ posts · 1k+ votes
    1y

    How much of a gain do you have on the sale of the property? 

    what you could do is sell the property, buy a property in the same year AND place the property in service and do a cost seg to minimize taxes. 

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  • Christian Maluo
    Real Estate Broker · Portland, OR · Member since 2025 · 81 posts · 43 votes
    1y
    I’m a Portland realtor. Title has to also withhold proceeds for state taxes unless you say you are staying in Oregon. (Which you may be anyway!)
    1Reply
  • Benjamin Louie
    Property Manager · Erie & Millscreek PA | Maggie Valley & Haywood County NC · Member since 2024 · 264 posts · 118 votes
    1y

    @Matt Hilliard 

    Hey Matt! Congrats on the long-term rental! 🎉

    Oregon is tricky with 1031s — they usually still want their share of depreciation recapture even if you buy out of state. A couple of things that help:

    • Work with a CPA familiar with Oregon 1031 exchanges.

    • Some investors use a DST or structured deals to manage state tax exposure.

    Honestly, a specialist is your best bet to see if any of that $34k can be reduced.

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

    @Matt Hilliard

    Thanks for the shout @Bill B.! You would not have to pay state and federal tax or recapture any depreciation until you sold that property without a 1031 exchange. You can do as many exchanges as you want until you decide to cash out or simply die with the tax. At that time, your heirs get a step up in basis, so the tax dies with you.

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    2Reply
  • Bill B.
    Investor · Las Vegas, NV · Member since 2013 · 8k+ posts · 10k+ votes
    1y

    One more free hint Matt. 

    You can make one post with all your comments to save time @Matt Hilliard

    So you can thank @user1 for their help

    Tell @user2 that they had a good idea

    Then tell @user3 you’ll reach out to them

    While telling @user4 their comment doesn’t really help. :-)

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  • Josh L.
    USA · Member since 2023 · 145 posts · 84 votes
    1y

    @Matt Hilliard  Good question. Honestly, I’m not overly familiar with the mechanics of an Oregon 1031 exchange. I’d personally clarify whether you actually have to withhold tax at sale on a 1031. I would think there would be an exemption due to 1031. General tax rules follow the principle of “wherewithal to pay,” meaning you have cash available to pay the tax, so it would seem strange if tax were due in 2025 when all proceeds are being rolled into a federal 1031. My interpretation is that the clawback isn’t triggered until a sale that does not use a 1031. 

    Additional info after writing the above > Looking at Oregons form OR-24 it seems like you just need to report your deferred 1031 gain on the Oregon property until you dispose of the out of state (ie non Oregon property) in a non 1031 (like my first paragraph). So more of a reporting requirement than paying tax. 

    I could be wrong, as this may be more nuanced. 

    Instructions from From OR-24

    Use this form only to report the exchange of business and investment property in Oregon for property outside Oregon when you defer gain on an exchange of like-kind property under Internal Revenue Code sections 1031 or 1033. Don’t use this form for personal-use property such as the vehicle you use for transportation. Don’t use this form when exchanging property in Oregon for other property in Oregon. You must file this form for the tax year that you transferred property to another party in a like-kind exchange and annually thereafter until the disposition of the like-kind property. If you made more than one like-kind exchange, report each exchange on a separate form.

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  • Matt Hilliard
    OP
    Rental Property Investor · Nevada City, CA · Member since 2018 · 13 posts · 10 votes
    1y

    Thanks everyone for your Input!  I have another call scheduled with my Accountant tomorrow to clarify if this tax is a depreciation clawback that Oregon will want to get back from us and I also have some feelers out to some CPA's in Oregon so hopefully I will get some clarification soon.


    I appreciate all your time in responding to my question!

    Matt

    1Reply
  • Matt Hilliard
    OP
    Rental Property Investor · Nevada City, CA · Member since 2018 · 13 posts · 10 votes
    1y

    Thanks again everyone,

    My accountant and I did some more research and we did find that if you 1031 exchange out of Oregon into another state you can do that once.  You just need to file along with your taxes each year the Oregon form OR-24 and the federal form 8824 and that tells Oregon each year if you still own the replacement property outside of Oregon or if you have sold it. 


     Thanks @Josh Lewer for pointing out the OR-24 form as thats what prompted us into looking further into this option.

    This is great news for us and thanks again for everyone's feedback!

    Matt

    1Reply
  • Ashish AcharyaBusiness Member
    CPA, CFP®, PFS · FL · Member since 2017 · 5k+ posts · 3k+ votes
    1y

    @Matt Hilliard 

    Matt, you’re running into Oregon’s “clawback” rules—a common issue when exchanging out of state. Even if you complete a valid federal 1031 exchange, Oregon requires you to report and track deferred gains and depreciation recapture when the replacement property is outside Oregon. Here’s what to know and some strategies that might help:

    • Why Oregon still taxes you:
      • Oregon allows you to defer the gain federally through a 1031, but they don’t forget about it.
      • When you exchange into an out-of-state property, Oregon makes you file an annual “reporting return” and will collect state tax once you eventually dispose of the property in a taxable event.
      • That $34,000 is likely depreciation recapture plus state capital gains tax from the deferred exchange 18 years ago.
    • Strategies to consider:
      • Stay in Oregon property: If you exchange into another Oregon property, the deferral continues without triggering the clawback.
      • Refinance replacement property: Even if you must park money for Oregon’s bill, you might exchange into a higher-value property, then refinance after closing to pull cash out tax-free to cover the tax payment.
      • Installment sale / structured sale: Instead of a straight sale, you could consider structuring payments to spread out gains recognition, but this complicates a 1031 and needs expert guidance.
      • Cost segregation on new property: If you go out of state and accept Oregon’s clawback, a cost seg with bonus depreciation on the new property could generate large deductions to offset federal (and possibly Oregon-source) income, freeing up cash to pay the tax.
      • Charitable strategies: A charitable remainder trust (CRT) can sometimes help shelter a portion of gains, but that’s a more advanced estate/tax play.
    • Tax angle:
      • The new One Big Beautiful Bill (OBBA) in 2025 tightened tracking and reporting of state-source gains, so Oregon’s enforcement is stricter now.

    In short, if you move your exchange out of Oregon, you likely can’t avoid the $34K entirely, but you can plan around it with refinancing, cost seg, or advanced trust strategies. I’d recommend working with a CPA who’s done Oregon clawback planning specifically—most investors are surprised by this rule when exchanging across state lines.

    This post does not create a CPA-Client relationship. The information contained in this post is not to be relied upon. Readers should seek professional advice.

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