Pennsylvania
A 1031 exchange in Pennsylvania, where the state rule changed in 2023.
Until 2023, Pennsylvania taxed the gain that federal law deferred. That changed, but the state's realty transfer tax still applies to every deed in an exchange.
For exchanges from January 1, 2023, Pennsylvania personal income tax allows the same deferral of gain as IRC §1031. The state's realty transfer tax is a separate matter: it is charged on the deed you give when you sell and on the deed you receive when you buy, and an exchange does not exempt either one.
onezero3one acts as qualified intermediary for exchanges of Pennsylvania property, subject to a review of each file before an exchange agreement is signed. We work alongside 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 |
|---|---|---|---|
| State income tax treatment | Pennsylvania personal income tax allows deferral of gain on like-kind exchanges meeting IRC §1031 effective January 1, 2023. Before 2023, Pennsylvania did not follow federal like-kind treatment. The Department's own example is Pennsylvania land exchanged for Florida land. Individuals; exchanges before 2023 were treated differently, which can affect basis in property acquired then. | Your tax advisor | PA Department of Revenue, PIT Guide: Net Gains (Losses) Checked September 30, 2026 |
| Realty transfer tax | Pennsylvania realty transfer tax is 1% of value (72 P.S. §8102-C), plus local realty transfer tax; the grantor and grantee are jointly liable. Under 61 Pa. Code §91.160, each deed in an exchange of real estate is taxed on the value of the interest it conveys. No exchange exemption was found. Every deed; the local rate varies by municipality and school district. | Closing agent, under the contract's allocation | 61 Pa. Code ch. 91 (realty transfer tax regulations) Checked September 30, 2026 |
| Tax at closing for nonresident sellers | Pennsylvania's nonresident withholding rules cover business income and certain lease payments; the Department's page does not list sales of real estate. No withholding at closing on a Pennsylvania real property sale was found. A nonresident reports Pennsylvania-source gain on a Pennsylvania return when it is recognized. Absence finding; confirm with the closing agent. | Your tax advisor | PA Department of Revenue, Nonresident Withholding Checked September 30, 2026 |
Pennsylvania now follows 1031, from 2023
The Department of Revenue's guide states that, effective January 1, 2023, the deferral of tax on gains from like-kind exchanges is allowed, with like-kind property defined by IRC §1031. Its own example is Pennsylvania land exchanged for land in Florida, so an out-of-state replacement property is covered.
Before 2023, Pennsylvania did not follow federal like-kind treatment for personal income tax. If you acquired your current property in an exchange before 2023, your Pennsylvania basis may differ from your federal basis. That is a question for your tax advisor before you sell, because it changes the Pennsylvania gain on any cash you take out.
Realty transfer tax on each deed
The state realty transfer tax is 1% of the value of the real estate conveyed, and most municipalities and school districts add their own local tax. The seller and buyer are jointly liable, and the contract usually allocates it between them. Under 61 Pa. Code §91.160, when real estate is exchanged, each deed is taxed on the value of the interest it conveys. We found no exemption for exchanges. In practice, your sale deed and your replacement deed are each taxed as they would be in an ordinary sale and purchase.
No withholding at closing was found
Pennsylvania's nonresident withholding rules cover business income and certain lease payments; the Department's page does not list sales of real estate, and we found no withholding at a Pennsylvania real estate closing. A nonresident who recognizes gain on Pennsylvania real property, for example on cash taken out of an exchange, reports it on a Pennsylvania return.
Preparing the closing
- Exchange agreement, assignment of the sale contract, and written notice to the buyer, all before the deed is delivered.
- Instructions to your closing agent to send the net proceeds to the intermediary, not to you.
- The transfer-tax allocation in your sale and purchase contracts, checked against your budget for both deeds.
- Your basis records, especially if the property came from an exchange before 2023.
The deadline calculator gives your day 45 and day 180 dates and the earlier tax-return cutoff.
Questions Pennsylvania sellers ask
Does Pennsylvania recognize 1031 exchanges?
Yes, for personal income tax on exchanges from January 1, 2023, according to the Department of Revenue's guide. Earlier exchanges were treated differently.
Is there realty transfer tax on an exchange?
Yes. Each deed is taxed on the value it conveys: 1% state plus the local rate.
I did an exchange in 2019. Does that matter now?
It may. Pennsylvania did not defer the gain then, so your Pennsylvania basis may not match your federal basis. Ask your tax advisor before you sell.
Related
Sources
- PA Department of Revenue, Personal Income Tax Guide: Net Gains (Losses) from the Sale, Exchange or Disposition of Property (checked September 30, 2026)
- 61 Pa. Code ch. 91, Realty Transfer Tax (incl. §91.160 exchanges of realty) (checked September 30, 2026)
- PA Department of Revenue, Nonresident Withholding (checked September 30, 2026)
Selling Pennsylvania property?
Tell us the county, the expected closing date, and whether the property was acquired in an earlier exchange.
Discuss your Pennsylvania exchange