Delaware
A 1031 exchange of Delaware property, with the transfer tax in view.
Delaware lets an exchanger claim the exemption on the recording form itself, so the paperwork is light. The realty transfer tax is another matter: at 3% of value, split between buyer and seller, it is a significant cost, and exchanges are not exempt.
In Delaware, a nonresident seller claims the 1031 exemption directly on Form REW-EST at recording, with no advance application and no letter from the intermediary. The bigger number is the realty transfer tax: 3% of value, normally shared equally by buyer and seller, charged on your sale deed and again on any Delaware replacement purchase.
onezero3one acts as qualified intermediary for exchanges of Delaware property, subject to a review of each file before an exchange agreement is signed. We work with your closing agent and tax advisor; we do not give tax or legal advice.
What is specific to this state
The federal rules in IRC §1031 decide whether an exchange qualifies. The items below are state requirements that sit alongside them at closing or on the return. Each links to the official source it was checked against; confirm the current version with your closing agent and tax advisor before relying on it.
| Issue | What applies | Usually handled by | Source |
|---|---|---|---|
| Estimated tax at recording (nonresident sellers) | Nonresident sellers file Form REW-EST (the successor to Form 5403) with the deed at the Recorder of Deeds. Unless an exemption applies, estimated tax of 6.6% of the gain (8.7% for C corporations) is taken from the net proceeds before the deed is recorded. Nonresident individuals, pass-through entities and corporations. | Closing attorney or title agent, at recording | Delaware Division of Revenue, Form REW-EST instructions (rev. 07/31/24) Checked September 30, 2026 |
| Claiming the 1031 exemption | An exchanger checks the Part 5 box on REW-EST declaring the sale or exchange exempt from gain recognition, and no payment is due. Delaware law requires the declaration to state the facts and the Internal Revenue Code section relied on, here §1031. No letter from the intermediary is required by the statute or form. Nonresident sellers whose gain is deferred. | Seller signs; closing agent submits at recording | 30 Del. C. §1126(b)(3); Form REW-EST Part 5 Checked September 30, 2026 |
| Realty transfer tax | Delaware's realty transfer tax is 3% of value (2.5% where the full local tax applies), split equally between buyer and seller by statute unless they agree otherwise. The list of excluded transfers has no exchange exemption, so each deed in an exchange is taxed. Every deed. | Closing agent, under the contract's allocation | 30 Del. C. §§5401, 5402, 5412 Checked September 30, 2026 |
REW-EST at recording
Nonresident individuals, pass-through entities and corporations selling Delaware real estate file Form REW-EST, which replaced Form 5403, with the deed at the Recorder of Deeds. Without an exemption, estimated tax of 6.6% of the gain (8.7% for C corporations) is taken from the net proceeds before recording.
For an exchange, the seller checks the box in Part 5 declaring that the sale or exchange is exempt from gain recognition, and no payment is due. Delaware law requires the declaration to set out the facts and the Internal Revenue Code section relied on, so describe the transaction as a §1031 exchange through a qualified intermediary. The form has no dedicated field for that statement; ask your closing attorney how they attach it.
The realty transfer tax is the real cost
Delaware's realty transfer tax is 3% of value, or 2.5% where the local government has enacted its full share, and the statute divides it equally between grantor and grantee unless the contract says otherwise. Its list of excluded transfers has no exchange exemption, so each deed in an exchange is taxed on its value. On a $600,000 sale that is $18,000 in total, typically $9,000 from the seller, and the same arithmetic applies to a Delaware purchase.
State income tax
Delaware starts from federal adjusted gross income and makes no §1031 adjustment, so deferred gain is deferred for Delaware. Nonresidents are taxed on Delaware-source income when gain is recognized, for example on boot.
Questions Delaware sellers ask
Do I pay Delaware tax at closing if I am doing an exchange?
Not on deferred gain, if you check the Part 5 exemption on REW-EST and state the facts and §1031. Recognized gain is still subject to the estimated tax.
Is Form 5403 still used?
No. The Division of Revenue now uses Form REW-EST.
Does an exchange avoid the transfer tax?
No. Both deeds are taxed. Negotiate the split in your contracts.
Related
Sources
- Delaware Division of Revenue, Form REW-EST instructions (checked September 30, 2026)
- 30 Del. C. ch. 11, subch. III (§1126, estimated tax of nonresidents) (checked September 30, 2026)
- 30 Del. C. ch. 54, subch. I (realty transfer tax) (checked September 30, 2026)
Selling Delaware property?
Tell us where the property is and the closing date, and whether you are buying the replacement property in Delaware too; the transfer tax on both deeds belongs in your budget.
Discuss your Delaware exchange