A 1031 exchange in Washington DC lets you sell investment real estate and reinvest in like-kind property while deferring the tax on the gain. The federal rules apply the same way everywhere. The District has a high tax on the gain, conforms to the federal exchange rules, and adds significant recordation and transfer taxes on the transaction itself that a 1031 does not defer. We act as your qualified intermediary, holding the proceeds and handling the documentation so the exchange holds from sale to closing.
Table of contents
- How much is capital gains tax on real estate in Washington DC?
- Recordation and transfer taxes
- Washington DC 1031 exchange rules and timeline
- 1031 exchanges across the Washington DC market
- Common Washington DC 1031 exchange mistakes
- Start your Washington DC 1031 exchange
- Frequently asked questions
How much is capital gains tax on real estate in Washington DC?
The District taxes the gain as ordinary income, with a top rate of about 10.75% on income in the highest bracket, among the highest rates in the country. That sits on top of the federal tax an exchange also defers:
- Long-term capital gains at 0%, 15%, or 20%, with the 20% rate applying above $545,500 of taxable income for single filers and $613,700 for married couples filing jointly in 2026.
- The 3.8% Net Investment Income Tax above $200,000 of modified adjusted gross income for single filers, $250,000 for married couples.
- Depreciation recapture, taxed as unrecaptured Section 1250 gain at up to 25%.
- The District's rate of up to about 10.75% on the gain.
The District conforms to Section 1031, so a properly structured exchange defers both the federal and the DC income tax. The full federal framework is in our main 1031 exchange guide.
Recordation and transfer taxes
What the District does charge on the transaction itself are recordation and transfer taxes, which together are substantial, especially on higher-value commercial property where the combined rate runs into the low single-digit percentages of the price. These are taxes on the conveyance and the recording of the deed, not on your income or gain, so a 1031 exchange does not defer them the way it defers federal and DC income tax. Budget them as transaction costs on both the sale and the purchase, separate from the tax the exchange is deferring, and confirm the current rates and any thresholds that apply to your transaction.
Washington DC 1031 exchange rules and timeline
The federal deadlines govern, and they are strict:
- 45-day identification. Identify replacement property in writing within 45 days of the sale.
- 180-day closing. Close within 180 days of the sale, or by your return due date including extensions, whichever is earlier.
- No constructive receipt. Proceeds go to your qualified intermediary, never to you.
- Equal or greater value and debt. Reinvest all net proceeds and match or exceed the relinquished value and debt, or the shortfall is taxable boot.
- Same taxpayer. The entity that sold must be the entity that buys.
1031 exchanges across the Washington DC market
The District's real estate market is shaped heavily by the federal government and the institutions around it. Multifamily is a deep and active segment, supported by a large renter population, and commercial and office property has historically been anchored by federal agencies, contractors, and associations. The office market has been repositioning amid changes in federal space needs and remote work, which has prompted interest in conversions and value-add strategies, so underwriting an office or mixed-use replacement property here should reflect current occupancy and the cost of any repositioning. Investors active in the District frequently look across the line into the Northern Virginia and Maryland suburbs, which a 1031 fully allows. Property tax in the District varies by class, with commercial property taxed at higher rates, so confirm the classification and rate for any replacement deal.
Common Washington DC 1031 exchange mistakes
- Overlooking the recordation and transfer taxes, which are significant and are not deferred by a 1031.
- Underwriting office or mixed-use property without reflecting current occupancy and repositioning costs.
- Taking receipt of the proceeds, or missing the 45-day identification window.
- Trading down or pulling cash out, which creates taxable boot.
Start your Washington DC 1031 exchange
Set up your exchange before your relinquished property closes, so the proceeds never reach your hands and the 45-day and 180-day clocks start clean. Contact our team to begin, or to talk through a specific deal.
Frequently asked questions
How much is capital gains tax on real estate in Washington DC?
The District taxes the gain as ordinary income at up to about 10.75%, on top of federal capital gains tax.
Does a 1031 defer the DC transfer and recordation taxes?
No. Those are taxes on the conveyance and deed recording, not on income, so a 1031 does not defer them. Budget them as transaction costs.
Does the District conform to federal 1031 rules?
Yes. A properly structured exchange defers both the federal and the DC income tax.
Do I need a qualified intermediary for a Washington DC 1031 exchange?
Yes. The intermediary must hold the proceeds and facilitate the exchange. Engage one before the relinquished property closes.
This page is general information, not tax or legal advice. We act as a qualified intermediary and do not provide tax or legal advice. District and federal rules and thresholds change; confirm current figures with your tax advisor.
