Delaware's 4% realty transfer tax is the number that surprises investors most, because it is charged on the price of every sale and every purchase, and a 1031 exchange defers none of it. Delaware capital gains tax on real estate is ordinary income tax, 6.6% on income of $60,000 or more, and nonresident sellers prepay it at recording on Form REW-EST. A 1031 exchange in Delaware defers the income tax and the REW-EST payment; plan for the transfer tax separately.
Reviewed by Jon Hilley, CEO & Founder of 1031 Specialists. Last reviewed September 29, 2026.
| State tax on real estate gains | Yes. Ordinary income rates of 2.2% to 5.55% below $60,000, and 6.6% at $60,000 and above |
|---|---|
| Long-term capital gains treatment | No preferential rate |
| Nonresident withholding at closing | Yes. Estimated tax on the gain at 6.6% for individuals and most entities, 8.7% for C corporations |
| Withholding form | Form REW-EST, filed with the deed at recording |
| Transfer or conveyance tax (a 1031 does not defer it) | Realty transfer tax of 3% state, or 2.5% state plus up to 1.5% local; split equally between buyer and seller unless agreed otherwise |
| Clawback on out-of-state replacement property | None |
| Conforms to Section 1031 | Yes |
Table of contents
- How much is capital gains tax on real estate in Delaware?
- Delaware tax on a $300,000 gain: worked example
- Form REW-EST: Delaware nonresident withholding
- Delaware realty transfer tax
- Beach rentals as 1031 property
- Delaware conformity and clawback
- Moving into or out of Delaware
- Where Delaware exchanges happen
- Federal rules for a Delaware exchange
- Delaware 1031 mistakes
- Start your Delaware 1031 exchange
- Frequently asked questions
- Sources
How much is capital gains tax on real estate in Delaware?
Delaware taxes the gain on investment property as ordinary income. Its brackets run from 2.2% to 5.55% on income under $60,000, and 6.6% applies once income reaches $60,000. A real estate sale of any size puts almost all of the gain in the 6.6% bracket, so for planning purposes the state rate on a sale is 6.6%. There is no separate long-term capital gains rate, and depreciation recapture is taxed at the same rate as the rest of the gain.
Federal tax comes on top: 20% on long-term gain for joint filers with taxable income above $613,700, up to 25% on unrecaptured Section 1250 gain, and the 3.8% net investment income tax. See both outcomes side by side in our capital gains vs. 1031 comparison.
Delaware tax on a $300,000 gain: worked example
Assumptions: a $300,000 long-term gain on an investment property, $100,000 of it unrecaptured Section 1250 depreciation, a seller in the top federal bracket and Delaware's 6.6% bracket, filing jointly.
| Tax | Math | Amount |
|---|---|---|
| Federal unrecaptured §1250 gain | 25% x $100,000 | $25,000 |
| Federal long-term capital gain | 20% x $200,000 | $40,000 |
| Net investment income tax | 3.8% x $300,000 | $11,400 |
| Federal subtotal | $76,400 | |
| Delaware income tax | 6.6% x $300,000 | $19,800 |
| Total deferred by a full 1031 | $96,200 |
A full exchange defers all $96,200. It does not reduce the seller's half of the realty transfer tax, which on a $1 million sale in a town with the full local rate is $20,000. Model your own recapture with the depreciation recapture calculator.
Form REW-EST: Delaware nonresident withholding
When a nonresident individual, pass-through entity or corporation sells Delaware real estate, Delaware collects estimated income tax before the deed records. Form REW-EST, the Real Estate Tax Return and Declaration of Estimated Income Tax, goes to the Recorder of Deeds with the deed and payment. The estimate is 6.6% of the gain for individuals and most entities and 8.7% for C corporations. It is a prepayment, credited on your Delaware nonresident return.
The form exempts a sale where the gain is not recognized because of a federal or Delaware exemption, which is how a like-kind exchange is reported: the seller claims that no gain is recognized under Section 1031 and pays nothing. Older guides refer to this filing as Form 5403; closing agents now use REW-EST. If you take cash out, the recognized portion is taxable, so settle the estimate with your CPA before closing. Foreign sellers also face federal withholding under FIRPTA; see our FIRPTA guide.
Delaware realty transfer tax
Delaware's realty transfer tax is steep, and it is charged on value, not gain, so an exchange does not defer it. The state rate is 3%, reduced to 2.5% where a county or municipality levies its own tax. Local governments may charge up to 1.5%, which is why most Delaware closings pay 4% in total. The statute splits the tax equally between grantor and grantee unless the parties agree otherwise.
In an exchange you meet this tax twice. Selling a $1 million rental at 4% costs you $20,000 as the seller's half; buying a $1.2 million replacement in Delaware costs another $24,000 as the buyer's half. Both are closing costs, and the purchase-side share can be paid from exchange funds, but they come out of your equity. Delaware's first-time homebuyer reduction does not help here, because it applies only to buyers who will live in the home.
Beach rentals as 1031 property
Rehoboth Beach, Lewes, Bethany Beach and the rest of eastern Sussex County are where many Delaware exchanges start or end, and a beach house is where the investment-use test gets tested. A property you use personally is not held for investment. The IRS safe harbor in Revenue Procedure 2008-16 treats a dwelling as qualifying if you own it for 24 months around the exchange, rent it at fair rent for at least 14 days in each of those two 12-month periods, and limit personal use to 14 days or 10% of rental days, whichever is greater. Keep the rental records. Delaware also added a lodging tax on short-term rentals, covered in Division of Revenue TIM 2024-01, which belongs in your underwriting for any vacation-rental replacement.
Delaware conformity and clawback
Delaware follows federal adjusted gross income, so gain deferred on Form 8824 is deferred on your Delaware return. There is no clawback or annual tracking form like California's FTB 3840. If you are a Delaware resident when you eventually sell in a taxable sale, Delaware taxes the full deferred gain at its ordinary rates. Holding until death gives heirs a stepped-up basis; see our swap-till-you-drop guide.
Moving into or out of Delaware
Nonresidents pay Delaware tax on gain from Delaware real estate, collected up front through REW-EST unless the sale is an exchange. Much of the beach market is owned by residents of Maryland, Pennsylvania and New Jersey, so a typical Delaware exchange involves an out-of-state seller. Those owners still owe their home state's tax on a later taxable sale. Delaware residents trading out often head to Florida, where there is no state income tax on the eventual sale and no 4% transfer tax.
Where Delaware exchanges happen
Delaware exchange activity falls into two markets. Northern New Castle County, around Wilmington and Newark, carries the commercial, multifamily and flex industrial trades, shaped by the banking and corporate services employers and the University of Delaware. Southern Sussex County is the resort market, from Lewes to Fenwick Island, plus a fast-growing inland band of single-family rentals and retail along Route 1.
Federal rules for a Delaware exchange
Identify replacement property within 45 days of the sale and close within 180 days. A qualified intermediary holds the proceeds the whole time. Reinvest equal or greater value and replace the debt you paid off to defer all of the tax. The 1031 exchange guides cover each rule, the 45-day identification validator checks your list, and the partial exchange calculator shows what a trade-down costs.
Delaware 1031 mistakes
- Not claiming the exchange exemption on REW-EST, so 6.6% of the gain (8.7% for a C corporation) is collected at recording.
- Forgetting the realty transfer tax applies again on a Delaware replacement purchase.
- Exchanging a beach house used mostly by the family, without the rental history to show investment use.
- Using a guide or closing checklist that still references Form 5403 and missing the current REW-EST requirements.
- Underwriting a Sussex County vacation rental without the short-term rental lodging tax.
Start your Delaware 1031 exchange
Engage us before your relinquished property closes. We prepare the exchange documents your settlement attorney needs, support the REW-EST exemption, hold proceeds in a segregated account and track both deadlines. Start your exchange or book an intro call.
Frequently asked questions
How can I avoid capital gains tax on real estate in Delaware?
Complete a 1031 exchange: sell through a qualified intermediary and reinvest all net proceeds in like-kind property within 180 days. That defers federal tax and Delaware income tax of up to 6.6%. The realty transfer tax is still due.
What is the Delaware capital gains tax rate on real estate?
Delaware taxes gains as ordinary income. Rates range from 2.2% to 5.55% on income under $60,000, and 6.6% applies at $60,000 and above, so most real estate gains are taxed at 6.6%.
What is Form REW-EST in Delaware?
It is the Real Estate Tax Return and Declaration of Estimated Income Tax that nonresident sellers file with the deed. It collects 6.6% of the gain for individuals, or 8.7% for C corporations, unless the gain is not recognized, as in a 1031 exchange.
Who pays the Delaware realty transfer tax?
By statute it is split equally between buyer and seller unless they agree otherwise. The total is usually 4%: 2.5% to the state and up to 1.5% to the town or county. A 1031 exchange does not defer it.
Can I do a 1031 exchange with a Delaware beach house?
Yes, if it is held for investment. The IRS safe harbor requires renting it at fair rent for at least 14 days in each of the two years around the exchange and limiting personal use to 14 days or 10% of rental days.
Sources
- Delaware Division of Revenue: Personal Income Tax FAQs
- Delaware Form REW-EST instructions (2025)
- Delaware Code Title 30, Chapter 54, Subchapter I (realty transfer tax)
- Delaware Code Title 22, Chapter 16 (municipal realty transfer tax)
- Delaware Division of Revenue: Technical Information Memoranda
Related: Maryland, Pennsylvania, New Jersey and all 50 states.
This page is general information, not tax or legal advice. 1031 Specialists acts as a qualified intermediary. Delaware rates and forms change, so confirm the details with your CPA or settlement attorney.
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