If you are selling investment property in New Jersey and considering a 1031 exchange, one of the first questions you may have is:
How much does a 1031 exchange cost?
The answer depends on the transaction.
A standard delayed 1031 exchange may involve a Qualified Intermediary fee, along with the normal title, legal, settlement, recording, financing and closing expenses associated with selling one property and purchasing another.
More complex transactions — such as reverse 1031 exchanges, improvement exchanges or exchanges involving multiple properties — may involve additional fees and considerably more coordination.
There are also important New Jersey-specific considerations, including the New Jersey Realty Transfer Fee, GIT/REP requirements and state income tax treatment.
That is why investors should look at the total cost of completing a 1031 exchange, rather than focusing only on the Qualified Intermediary fee.
Important: Rally Point Title Agency and Rally Point 1031 Exchange Services LLC do not provide tax, accounting, legal, investment or financial advice. The tax treatment of a 1031 exchange depends on the individual transaction. Investors should consult their CPA or accountant and attorney regarding their specific circumstances before proceeding.
What Is a 1031 Exchange?
A 1031 exchange, also called a like-kind exchange, may allow a real estate investor to defer recognition of certain gain when qualifying investment or business real estate is exchanged for other qualifying real property.
Under current federal law, Section 1031 generally applies to real property held for investment or productive use in a trade or business.
The IRS explains that Section 1031 no longer applies to exchanges of personal or intangible property and that real estate held primarily for sale does not qualify. Read the IRS guidance on like-kind real estate exchanges.
A 1031 exchange is generally a tax-deferral strategy, not a blanket elimination of tax.
The specific amount of gain that may be deferred — or recognized — depends on factors including the investor's adjusted basis, depreciation, replacement property, debt, cash received, transaction expenses and other circumstances.
That calculation should be made by the investor's CPA or accountant, not the Qualified Intermediary.
How Much Does a 1031 Exchange Cost in New Jersey?
There is no single flat cost that applies to every New Jersey 1031 exchange.
The total cost may include:
- Qualified Intermediary fees
- Additional-property fees
- Title and settlement charges
- Attorney fees
- CPA or tax-preparation fees
- Recording fees
- New Jersey Realty Transfer Fee where applicable
- Financing and lender costs
- Appraisal expenses
- Survey expenses
- Due diligence expenses
- Costs associated with the replacement property
- Additional fees for reverse or improvement exchanges
A straightforward exchange involving one relinquished property and one replacement property will generally be less complex than an exchange involving several properties or a reverse exchange.
The best way to determine the actual 1031 exchange cost in New Jersey is to obtain a written fee quote based on the structure of the particular transaction.
1. Qualified Intermediary Fees for a 1031 Exchange
One of the primary expenses that is specific to a 1031 exchange is the Qualified Intermediary fee.
A Qualified Intermediary, commonly referred to as a QI, facilitates a typical delayed 1031 exchange and helps prevent the investor from having unrestricted access to the sale proceeds during the exchange.
The IRS recognizes the Qualified Intermediary arrangement as one of the safe harbors that can be used in a deferred exchange. IRS Publication 544 explains Qualified Intermediaries and deferred exchanges.
Depending on the transaction and the QI's fee structure, the exchange fee may cover services such as:
- Preparing the exchange agreement
- Preparing assignment and notification documents
- Coordinating with the closing professionals
- Receiving and holding exchange proceeds
- Processing replacement-property identification documents
- Preparing replacement-property exchange documents
- Wiring exchange funds for the replacement-property closing
- Monitoring the 45-day and 180-day exchange periods
The exact Qualified Intermediary fee in New Jersey can vary based on the exchange.
An investor completing a simple delayed exchange should not automatically expect to pay the same amount as an investor exchanging multiple properties or completing a reverse or construction exchange.
Are There Additional Fees for Multiple Properties?
Potentially.
If an exchange includes more than one relinquished or replacement property, additional documentation, wires and administrative work may be required.
For example, an investor may sell one property and ultimately acquire two or three replacement properties.
That may result in additional QI charges depending on the exchange agreement and fee schedule.
Investors should ask for the complete Qualified Intermediary fee schedule before beginning the exchange, including any charges associated with additional properties, wires, rush processing or more complicated exchange structures.
2. Title Insurance and Title Search Costs
A 1031 exchange does not eliminate the normal title work associated with selling and purchasing real estate.
The replacement property is still a real estate acquisition.
Depending on the transaction, costs may include:
- Title search
- Title examination
- Owner's title insurance
- Lender's title insurance when financing is involved
- Searches for judgments, liens or other recorded matters
- Settlement and closing services
- Recording-related charges
If the investor is purchasing replacement property in New Jersey, the title company will generally examine the title to determine what matters affect the property before closing.
The investor should budget for these expenses separately from the Qualified Intermediary fee.
3. Attorney Fees
New Jersey real estate transactions frequently involve attorneys, and a 1031 exchange can create additional issues that should be discussed with appropriate legal counsel.
An attorney may be involved in:
- Reviewing the sale contract
- Reviewing the replacement-property contract
- Addressing title issues
- Reviewing entity ownership
- Coordinating closing documents
- Reviewing exchange-related legal questions
- Advising on transaction structure
The Qualified Intermediary has a specific role in facilitating the exchange.
The QI does not replace the investor's attorney.
Attorney fees vary based on the professional, transaction and level of work required.
4. CPA and Accounting Costs
A CPA or accountant should be an important member of the investor's 1031 exchange team.
This is especially true when the investor is trying to determine:
- Their adjusted tax basis
- Their potential taxable gain
- Depreciation considerations
- Whether any taxable boot may result
- The tax consequences of exchange expenses
- How much must be reinvested to achieve a particular tax objective
- The consequences of replacing or reducing debt
- Federal and New Jersey tax consequences
- How the transaction should be reported
The IRS generally requires a taxpayer to report a like-kind exchange using Form 8824, Like-Kind Exchanges. View the IRS Instructions for Form 8824.
Accounting and tax-preparation fees therefore may be part of the overall cost of completing a 1031 exchange.
Rally Point does not calculate an investor's tax liability or advise an investor how much they must purchase or reinvest.
Those questions should be directed to the investor's CPA or accountant.
5. New Jersey Realty Transfer Fee
One cost New Jersey investors should not overlook is the state's Realty Transfer Fee, commonly called the RTF.
New Jersey generally imposes the Realty Transfer Fee on a seller when a deed transferring New Jersey real property is recorded, unless the transaction qualifies for a specific exemption.
The fee is calculated according to the consideration involved in the transfer.
You can review the current rates directly through the New Jersey Division of Taxation's Realty Transfer Fee guidance.
Importantly, completing a 1031 exchange does not automatically mean every other transfer-related cost disappears.
A 1031 exchange relates to the recognition of qualifying gain for tax purposes. The Realty Transfer Fee is a separate New Jersey transfer charge with its own rules and exemptions. ([New Jersey Official Website][1])
Investors should ask their attorney, closing professional and accountant which New Jersey fees apply to their particular transaction.
What About New Jersey Properties Selling for More Than $1 Million?
This has become particularly important for higher-value New Jersey real estate transactions.
New Jersey currently imposes an additional Graduated Percent Fee on certain property transfers where consideration exceeds $1 million.
The applicable rate depends on the total consideration and may range from 1% to 3.5% for covered transactions. Under current New Jersey law, the seller is responsible for the applicable Realty Transfer Fee and Graduated Percent Fee. The additional fee applies only to specified property classifications and is subject to its own exemptions. See the New Jersey Division of Taxation's current transfer-fee rules. ([New Jersey Official Website][1])
This is another reason investors should not assume the only cost associated with selling an investment property through a 1031 exchange is the QI fee.
A high-value New Jersey transaction can have substantial closing and transfer costs independent of the exchange itself.
6. New Jersey GIT/REP Requirements and 1031 Exchanges
New Jersey also has special tax-reporting procedures when real property is sold.
The GIT/REP forms are particularly important for nonresident property sellers.
New Jersey's current GIT/REP-3 Seller's Residency Certification/Exemption specifically includes an exemption provision for qualifying 1031 like-kind exchanges.
The state's instructions explain that a nonresident claiming the 1031 provision must provide information regarding the like-kind property received.
You can review the state's GIT/REP-3 form and instructions here.
This becomes more complicated when an exchange is only partially tax deferred.
New Jersey's guidance specifically addresses situations in which a seller receives non-like-kind property or where Section 1031 applies only partially. ([New Jersey Official Website][2])
That is why an investor completing a New Jersey 1031 exchange as a nonresident should involve their accountant and closing professionals early.
Is the 2% New Jersey Nonresident Requirement a 1031 Exchange Fee?
No.
This distinction is important.
New Jersey's nonresident real-property rules may require certain sellers to make an estimated Gross Income Tax payment when selling New Jersey real estate.
That requirement is not the same thing as a Qualified Intermediary fee, title fee or Realty Transfer Fee.
New Jersey's GIT/REP procedures also provide specific treatment for qualifying 1031 exchanges and partially exempt exchanges. Review New Jersey's GIT/REP frequently asked questions.
Investors should not attempt to determine their own withholding or exemption status based solely on an online article.
Speak with your CPA or accountant and New Jersey attorney regarding the appropriate treatment.
7. Financing Costs on the Replacement Property
A 1031 exchange does not require the replacement property to be purchased entirely with cash.
If an investor finances the replacement property, normal lending expenses may apply.
Those could include:
- Loan origination charges
- Appraisal fees
- Credit-related fees
- Lender legal fees
- Lender's title insurance
- Mortgage recording expenses
- Other lender-required closing charges
How debt affects an investor's 1031 exchange tax result is a separate issue from the amount of the financing expense itself.
An investor who sells property subject to debt and purchases replacement property with a different financing structure should have their CPA analyze the transaction before closing.
8. Real Estate Brokerage and Ordinary Closing Costs
Selling one property and purchasing another generally creates two separate real estate transactions.
That means investors may still encounter ordinary transaction costs such as:
- Real estate brokerage commissions
- Inspection expenses
- Environmental reports
- Engineering reports
- Surveys
- Municipal searches
- Escrow charges
- Recording charges
- Property taxes and prorations
- HOA or condominium charges
- Due diligence costs
These aren't necessarily 1031 exchange fees.
Many would have existed even if the investor sold one property and purchased another without using Section 1031.
But they still matter when calculating the total amount of money needed to complete a 1031 exchange.
Which 1031 Exchange Costs Can Be Paid From Exchange Funds?
This is a question investors ask frequently — and it is also an area where Rally Point should not give tax advice.
Different expenses can receive different tax treatment.
Using exchange funds for certain expenses could potentially affect the amount of gain recognized or otherwise affect the tax consequences of the transaction.
Federal regulations contain rules addressing transactional expenses in deferred exchanges, but determining how a specific expense should be treated can depend on the nature of that expense and the transaction. You can review the federal regulations governing deferred exchanges through the Electronic Code of Federal Regulations.
Before instructing the QI to pay a particular fee from exchange funds, investors should ask:
“How will my CPA treat this expense for purposes of my 1031 exchange?”
The Qualified Intermediary can process authorized exchange disbursements consistent with the exchange agreement.
The CPA determines the tax consequences.
Is “Boot” a 1031 Exchange Fee?
No.
Boot is not a fee charged by the Qualified Intermediary or title company.
The term generally refers to money or other non-like-kind property received in an exchange that may cause some gain to be recognized.
The IRS explains that when an investor receives money or other non-like-kind property as part of an otherwise qualifying exchange, gain may need to be recognized to the extent of that money or other property. Read the IRS's Section 1031 overview. ([IRS][3])
Whether an investor will have taxable boot — and how much — should be determined by their CPA or accountant.
How Much Does a Reverse 1031 Exchange Cost?
A reverse 1031 exchange is generally more complex than a standard delayed exchange.
In a traditional delayed exchange, the investor usually:
Sells first → purchases replacement property afterward.
In a reverse exchange, the investor needs to secure the replacement property before the relinquished property has been sold.
This typically requires a specialized parking arrangement involving an Exchange Accommodation Titleholder, or EAT.
That structure may involve:
- Formation of a special-purpose entity
- Additional exchange documentation
- EAT fees
- Additional legal work
- Additional title work
- Financing complications
- Insurance considerations
- Property carrying costs
- Additional transfer or recording expenses
As a result, a reverse exchange typically costs substantially more than a straightforward delayed exchange.
Rather than relying on a generic internet price, an investor considering a reverse 1031 exchange should request a transaction-specific quote before entering into the replacement-property transaction.
How Much Does an Improvement 1031 Exchange Cost?
An improvement exchange, sometimes called a construction or build-to-suit exchange, may allow exchange proceeds to be used toward qualifying improvements to replacement property under an appropriately structured transaction.
Like a reverse exchange, this generally requires substantially more coordination than an ordinary delayed exchange.
There may be:
- EAT-related expenses
- Construction draws
- Additional exchange administration
- Contractor coordination
- Legal expenses
- Title expenses
- Construction financing
- Inspections
- Additional documentation
These exchanges should be planned well before the relinquished property closes.
Does a 1031 Exchange Eliminate Capital Gains Tax in New Jersey?
Generally, Section 1031 is about deferring recognition of qualifying gain, not automatically eliminating tax forever.
New Jersey taxes capital gains as part of its Gross Income Tax system, and unlike the federal system, New Jersey does not distinguish between short-term and long-term capital gains for state income tax purposes. Read New Jersey's current capital-gains guidance. ([New Jersey Official Website][4])
New Jersey also has a graduated individual income tax structure. Current New Jersey income tax rate information is available from the Division of Taxation. ([New Jersey Official Website][5])
That makes tax planning especially relevant for investors selling highly appreciated New Jersey real estate.
However, it would be misleading to say that every New Jersey investor will “save” a particular percentage by completing a 1031 exchange.
The actual tax result can depend on:
- Federal taxable gain
- New Jersey taxable gain
- Adjusted basis
- Depreciation
- Filing status
- Other income
- Ownership structure
- Property classification
- Exchange structure
- Boot received
- Future disposition of the replacement property
Only the investor's CPA or accountant should calculate the potential tax deferral.
Does a 1031 Exchange Have a Minimum Property Value?
Federal Section 1031 does not establish a simple minimum sale price that makes an investor eligible for a like-kind exchange.
The more practical question is whether completing an exchange makes economic sense after considering:
- Potential tax deferral
- QI fees
- Closing costs
- Professional fees
- Replacement-property costs
- Financing
- Investment objectives
A 1031 exchange on a relatively modest property could make sense for one investor and not another.
That is a tax and investment decision, not a determination the QI should make.
When Does the Cost of a 1031 Exchange Usually Increase?
Several factors can make a 1031 exchange more expensive or complex:
Multiple Relinquished Properties
Selling several properties requires additional coordination and documentation.
Multiple Replacement Properties
Each additional purchase may create additional exchange documents, wires and closing coordination.
Reverse Exchanges
Buying before selling usually requires an EAT and specialized structure.
Improvement Exchanges
Using exchange funds toward improvements requires significantly more administration.
Last-Minute Exchanges
Waiting until immediately before closing can create logistical challenges and may limit options.
Complicated Ownership Structures
LLCs, partnerships, trusts and entity changes can raise tax and legal questions that should be addressed by the investor's advisors.
Properties in Multiple States
Cross-state exchanges may require coordination among several title companies, attorneys and state tax professionals.
For more on interstate transactions, read Rally Point's Can You Complete a 1031 Exchange Across State Lines?
Don't Choose a Qualified Intermediary Based on Price Alone
Cost matters.
But when a Qualified Intermediary may be holding a substantial amount of an investor's sale proceeds, the lowest fee should not necessarily be the only consideration.
Investors should also ask about:
- Experience
- Exchange-fund security
- How exchange funds are held
- Wire-verification procedures
- Documentation
- Responsiveness
- Communication
- Cybersecurity
- Professional insurance or safeguards
- Experience with complex transactions
The QI is handling both time-sensitive documentation and significant funds.
That deserves careful consideration.
45-Day and 180-Day Deadlines Can Affect the Financial Side of an Exchange
Investors also need to consider the financial impact of the strict exchange timeline.
For a typical delayed exchange, replacement property generally must be identified within 45 days after transferring the relinquished property.
The replacement property generally must be received within 180 days, or by the due date of the investor's applicable tax return including extensions, whichever comes first.
The IRS details these deadlines in its Form 8824 instructions. ([IRS][6])
These timelines can influence:
- Financing
- Due diligence
- Negotiations
- Replacement-property selection
- Inspection costs
- Appraisal timing
- Closing expenses
This is one reason investors should begin planning the exchange before the relinquished property closes.
Frequently Asked Questions About 1031 Exchange Costs in New Jersey
How much does a 1031 exchange cost in New Jersey?
There is no single price. A 1031 exchange may involve Qualified Intermediary fees plus the normal costs associated with selling and acquiring real estate. More complex exchanges, additional properties, financing and professional services can increase the total cost.
How much does a Qualified Intermediary charge in NJ?
Qualified Intermediary fees vary based on the company and structure of the exchange. Investors should request a written quote that identifies the basic exchange fee and any additional-property, wire or specialized transaction charges.
Does Rally Point charge extra for multiple replacement properties?
The cost of a particular Rally Point exchange depends on the transaction and applicable exchange agreement. Contact Rally Point 1031 Exchange Services for the current fee structure based on your planned sale and replacement properties.
Are closing costs still due in a 1031 exchange?
Yes. A 1031 exchange does not eliminate the normal costs of selling and buying real estate.
Does a 1031 exchange eliminate the NJ Realty Transfer Fee?
A 1031 exchange does not automatically provide a blanket exemption from New Jersey's Realty Transfer Fee. The RTF has separate rules and statutory exemptions.
Does New Jersey recognize 1031 exchanges?
New Jersey's current GIT/REP documentation specifically addresses qualifying Section 1031 like-kind exchanges, including procedures applicable to certain nonresident sellers and partially taxable exchanges. ([New Jersey Official Website][2])
Do I still need an accountant if I use a Qualified Intermediary?
Yes.
The Qualified Intermediary facilitates the exchange.
The accountant or CPA analyzes the taxpayer's basis, gain, depreciation, boot and tax consequences.
Can I pay my closing costs with 1031 exchange funds?
The tax treatment of expenses paid from exchange proceeds can vary. Investors should obtain guidance from their CPA or tax professional before directing exchange funds toward specific expenses.
Is a reverse 1031 exchange more expensive?
Generally, yes. Reverse exchanges involve additional entities, documentation, title considerations and administration and are typically considerably more complex than standard delayed exchanges.
Is a 1031 exchange worth the cost?
That depends on the individual investor.
The appropriate comparison is not simply “How much is the QI fee?”
It is:
“How do the total transaction costs compare with my potential tax deferral and long-term investment objectives?”
That calculation should be reviewed with the investor's CPA and financial professionals.
Planning a 1031 Exchange in New Jersey? Know the Costs Before You Close
A properly structured 1031 exchange in New Jersey may offer real estate investors an opportunity to defer recognition of qualifying gain and reinvest into replacement real estate.
But a 1031 exchange is not free.
Investors should plan for the Qualified Intermediary fee as well as title charges, legal and accounting expenses, financing, closing costs and New Jersey-specific transfer and tax-reporting requirements.
And while cost is important, proper planning can be even more important.
Waiting until the relinquished property has already closed may be too late to structure a typical delayed 1031 exchange.
Rally Point 1031 Exchange Services LLC works with real estate investors, attorneys, accountants, Realtors, lenders and closing professionals to coordinate 1031 exchange transactions throughout New Jersey and nationwide.
If you are considering selling investment property in Matawan, Old Bridge, Marlboro, Manalapan, Freehold, Holmdel, Monroe, East Brunswick, Monmouth County, Middlesex County, Ocean County, Somerset County or anywhere in New Jersey, contact Rally Point before closing to discuss the exchange process and applicable Qualified Intermediary fees.
Your CPA or accountant should separately advise you regarding whether a 1031 exchange is appropriate and the potential tax consequences of your individual transaction.
Important Disclaimer
Rally Point Title Agency and Rally Point 1031 Exchange Services LLC do not provide tax, accounting, legal, financial, securities or investment advice. This article is provided solely for general educational purposes and should not be relied upon to determine whether a transaction qualifies under Section 1031, how much tax may be deferred, which costs should be paid from exchange funds, or the tax treatment of any expense.
1031 exchanges are fact-specific. Investors should consult their own CPA or accountant and attorney regarding federal and New Jersey tax consequences before proceeding with an exchange.