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1031 Exchange for Commercial Real Estate in Massachusetts & New Hampshire: Defer Your Taxes, Protect Your Capital
A 1031 exchange defers capital gains, depreciation recapture, and the MA Millionaire's Tax — entirely. The planning window closes when your sale does.
Informational only. Not legal or tax advice. Consult a qualified CPA and attorney before making decisions.
Section 1
What Is a 1031 Exchange for Commercial Real Estate?
A 1031 exchange — formally known as a like-kind exchange under Section 1031 of the Internal Revenue Code — allows a commercial property owner to sell an investment property and defer all capital gains tax and depreciation recapture by reinvesting the proceeds into another qualifying like-kind property.
The name comes from the section of the tax code that governs it. When executed correctly, a 1031 exchange allows you to roll your entire equity — including the portion that would otherwise be taxed — into a new asset. The deferred gain carries forward into the replacement property's adjusted basis and is only recognized upon a future taxable sale.
For commercial property owners in Massachusetts and New Hampshire, this is one of the most powerful tools available. A single well-executed exchange can defer hundreds of thousands of dollars in federal and state taxes — preserving capital that can be reinvested into a stronger, better-positioned asset.
Section 2
How a 1031 Exchange Works: Step by Step
A 1031 exchange is a structured, time-sensitive process. Every step must be completed in the correct sequence — and the planning must begin before the property goes to market.
Engage a Qualified Intermediary Before Listing
Before your property goes to market, engage a credentialed, bonded, and insured Qualified Intermediary (QI). The QI must be in place before the sale closes — you cannot retroactively structure a 1031 exchange. The QI will prepare the exchange agreement and hold your sale proceeds in a segregated escrow account.
Sell the Relinquished Property
At closing, the sale proceeds go directly to your QI — not to you. You cannot receive, touch, or control the funds at any point. Doing so triggers "constructive receipt" and disqualifies the entire exchange, making the full gain immediately taxable. The QI holds the funds in escrow until you are ready to close on the replacement property.
Identify Replacement Property Within 45 Days
Starting the day after your sale closes, you have exactly 45 calendar days to identify potential replacement properties in writing. The identification must be delivered to your QI by midnight of Day 45. You may use one of three identification rules: the Three Property Rule (up to 3 properties of any value), the 200% Rule (any number of properties whose total value does not exceed 200% of the relinquished property value), or the 95% Rule (any number of properties if you acquire 95% of their total value).
Close on the Replacement Property Within 180 Days
You must close on the replacement property within 180 calendar days of the sale of the relinquished property — or by your tax return due date (including extensions), whichever comes first. If your sale closes after October 16, you may need to file a tax extension to preserve the full 180-day window. There are no routine extensions to either deadline.
QI Transfers Funds to Complete the Purchase
At the closing of the replacement property, your QI transfers the escrowed funds directly to the seller. To achieve full tax deferral, the replacement property must be of equal or greater value than the relinquished property, and you must reinvest all net equity and replace equal or greater debt. Any shortfall — known as "boot" — is taxable in the year of the exchange.
Section 3
The Two Deadlines That Determine Everything
The 45-day and 180-day deadlines are absolute. Missing either one — even by a single day — disqualifies the entire exchange and makes the full gain immediately taxable.
The 45-Day Identification Rule
You have exactly 45 calendar days from the closing date of the relinquished property to identify potential replacement properties in writing. The identification must be signed, describe the property clearly (address or legal description), and be delivered to your QI by midnight of Day 45. No extensions. No exceptions.
The 180-Day Closing Rule
You must close on the replacement property within 180 calendar days of the sale of the relinquished property — or by your federal tax return due date (including extensions), whichever is earlier. If your sale closes after October 16, file a tax extension to preserve the full 180-day window. No routine extensions.
Section 4
Choosing a Qualified Intermediary: What to Look For
The QI is the most important decision in a 1031 exchange — and the one most owners spend the least time on. The IRS requires a QI but does not regulate them. There is no federal licensing requirement, no minimum capitalization standard, and no mandatory insurance. The consequences of choosing a poorly capitalized or fraudulent QI can be catastrophic.
Bonded and Insured
Your QI will hold your sale proceeds — potentially millions of dollars — in escrow for up to 180 days. They must carry fidelity bonds and errors-and-omissions insurance. Ask for proof of coverage before signing any exchange agreement.
Segregated Exchange Accounts
Your funds must be held in a segregated, qualified escrow account — not commingled with the QI's operating funds. Ask specifically how your funds will be held and whether they are FDIC-insured or held in a qualified trust.
Institutional Backing
The most secure QIs are subsidiaries of title companies, banks, or other regulated financial institutions. This provides an additional layer of financial security and accountability. Avoid small, independent QIs with no institutional parent.
Experience with Commercial Transactions
Commercial 1031 exchanges are more complex than residential ones — larger proceeds, more complex debt structures, and greater boot risk. Choose a QI with documented experience in commercial transactions in Massachusetts and New Hampshire specifically.
Section 5
Massachusetts & New Hampshire: State-Specific 1031 Exchange Rules
The federal 1031 exchange rules apply equally in both states — but the state-level tax implications and procedural requirements differ significantly.
| Factor | Massachusetts | New Hampshire |
|---|---|---|
| State Capital Gains Tax Deferred | Yes — MA follows federal deferral treatment. Standard 5% rate + 4% Millionaire's Tax surtax (if applicable) are both deferred. | N/A — NH has no state capital gains tax. Federal deferral still applies. |
| Depreciation Recapture Deferred | Yes — deferred at both federal and MA state levels in a qualifying exchange. | Yes — deferred at the federal level. No state recapture tax in NH. |
| Real Estate Transfer Tax | None on the sale itself (MA does not have a transfer tax on the seller in a standard sale). | 1.5% of purchase price — typically split 0.75% buyer / 0.75% seller. Applies to the sale of the relinquished property regardless of exchange status. |
| Withholding Requirements | For sales of $1M+, seller may need to complete a Transferor's Certification documenting the 1031 deferral. Effective November 1, 2025. | No state withholding requirement for real estate sales. |
| Boot Taxation | Boot is taxable at both federal and MA state rates in the year of the exchange. | Boot is taxable at federal rates only. No state tax on boot in NH. |
Section 6
Advanced 1031 Exchange Strategies for Commercial Property Owners
Beyond the standard delayed exchange, there are several advanced structures that can provide additional flexibility for commercial property owners in Massachusetts and New Hampshire.
Reverse Exchange
Acquire the replacement property before selling the relinquished property. Useful in competitive markets like Greater Boston where inventory is limited. Requires an Exchange Accommodation Titleholder (EAT) to hold title to one of the properties. More complex and expensive than a standard exchange, but preserves the ability to acquire the right replacement asset.
Delaware Statutory Trust (DST)
Exchange into a fractional interest in an institutional-grade commercial property through a DST. Eliminates active management responsibilities while maintaining tax deferral. Useful for owners who want to exit management but are not ready to trigger a taxable sale. DST interests qualify as like-kind replacement property under IRS Revenue Ruling 2004-86.
Consolidation Exchange
Exchange multiple smaller properties into one larger, higher-quality commercial asset. Common for owners who have accumulated a portfolio of smaller industrial or office buildings and want to consolidate into a single, professionally managed asset with stronger long-term appreciation potential.
"Swap Till You Drop" Estate Strategy
Execute successive 1031 exchanges throughout your lifetime, deferring the gain indefinitely. Upon death, your heirs receive a stepped-up basis equal to the fair market value of the property — eliminating all deferred capital gains and depreciation recapture. This is the most complete tax elimination strategy available to commercial property owners.
Section 7
The Seven Most Expensive 1031 Exchange Mistakes
Any one of these mistakes can disqualify your exchange and trigger full tax liability on the entire gain — often at the worst possible time.
- Missing the 45-day identification deadline. The deadline is absolute. Day 45 ends at midnight. If you have not submitted a written identification to your QI by then, the exchange is disqualified.
- Using improper identification language. The identification must clearly describe the property — typically by address or legal description. Vague descriptions ("an industrial building in Andover") do not qualify.
- Taking possession or control of exchange funds. Any constructive receipt of the sale proceeds — even briefly — disqualifies the exchange. The funds must go directly from the buyer to the QI at closing.
- Underestimating debt replacement requirements. If your relinquished property had a $500,000 mortgage and your replacement property has a $300,000 mortgage, the $200,000 debt reduction is boot — taxable in the year of the exchange.
- Failing to engage a QI before the sale closes. The QI must be in place before closing. You cannot retroactively structure a 1031 exchange after the sale has occurred.
- Choosing an unvetted Qualified Intermediary. QI fraud and insolvency are real risks. Always verify bonding, insurance, segregated accounts, and institutional backing before signing an exchange agreement.
- Assuming the 1031 eliminates the tax. It defers it. The deferred gain carries forward. If you sell the replacement property in a taxable transaction, the deferred gain — plus any new gain — is recognized at that time.
Free Download
1031 Exchange Identification Timeline Checklist
A step-by-step, date-driven checklist that auto-calculates every deadline from your sale date. Enter your closing date and every target date populates instantly — so you never miss the 45-day identification window.
⬇ Download Free Checklist
Frequently Asked Questions
1031 Exchange for Commercial Real Estate in MA & NH: Common Questions
Work with MANSARD
Build Your 1031 Exchange Strategy Before You List
A 1031 exchange is not a transaction — it is a strategy. And like all strategies, it only works if it is built before the sale closes. At MANSARD, we help commercial property owners in Massachusetts and New Hampshire understand whether a 1031 exchange is the right move, what it will defer, and what the replacement market looks like — before anything goes to market.
While we do not serve as a Qualified Intermediary, we work closely with your QI, CPA, and legal team to ensure your real estate strategy is coordinated with your full tax picture. We help you model net proceeds across sale, exchange, and hold scenarios — so you make the right decision, not just the most convenient one.
- Understand whether a 1031 exchange makes sense for your specific asset and situation
- Model net proceeds across sale, exchange, and installment scenarios
- Identify the right replacement market and asset class for your reinvestment goals
- Coordinate with your QI, CPA, and attorney before the listing goes live
Schedule a Pre-Sale Strategy Call
A short, confidential conversation to understand your property's value, your full tax exposure, and whether a 1031 exchange is the right move — before you commit to anything.
Schedule a Pre-Sale Strategy Call Call (617) 674-2043Confidential. No obligation. Just insight.
Sources: IRS Publication 544, Sales and Other Dispositions of Assets (2025). IRS Revenue Ruling 2004-86 (DST like-kind exchange treatment). Massachusetts Department of Revenue, 1031 Exchange Withholding Guidance (effective November 1, 2025). Mass.gov, RE27RC26: 1031 Tax Deferred Exchanges (March 2026). NH RSA 78-B, Real Estate Transfer Tax. GCA1031, Massachusetts 1031 Exchange Real Estate Rules (May 2026).
MANSARD Commercial Properties · 18 Spring Grove Road, Andover, MA 01810 · (617) 674-2043 · masscommercialproperties.com
Jeremy Cyrier, CCIM, CRE — Licensed in Massachusetts and New Hampshire.