1031 Exchange Rules in Delaware

Last reviewed: June 2026. State rules change. Verify current forms before closing.

What Is Different in Delaware

Delaware structures its closing-table collection differently than most withholding states. Instead of withholding a percentage of the sales price, Delaware requires nonresident sellers to declare and pay estimated tax on the gain when the deed is recorded, using Form REW-EST. For a 1031 exchange, the fix is built into the form itself: check the right box in Part 5 and no payment is due. There is no advance application and no ongoing reporting afterward.

One housekeeping note: REW-EST was formerly called Form 5403, and the old number still appears in some county recorder materials. Same form, new name.

Does Delaware Conform to IRC Section 1031?

Yes. Delaware follows the federal like-kind exchange rules for real property. A 1031 exchange is an IRS-approved way to sell investment property and buy replacement property without paying tax on the gain right away. If your exchange qualifies for federal deferral, Delaware defers its income tax too. New to exchanges? Start with our 1031 exchange guide.

You can buy your replacement property in any state. Delaware imposes no in-state replacement requirement and does not track deferred gain after the exchange.

Delaware Tax Rate on Real Estate Gains

Delaware taxes capital gains as ordinary income at a top rate of 6.6% for 2026. On a $500,000 gain, that is roughly $33,000 of state tax on top of the federal bill. A qualifying exchange may defer all of it.

Estimated Tax at Deed Recording: Form REW-EST

Under 30 Del. C. Sections 1126, 1606, and 1909, a nonresident seller must file Form REW-EST with the deed and declare estimated income tax on the gain from the sale. The rates are 6.6% of the gain for individuals and most other taxpayers, and 8.7% for C corporations. The deed does not record without the form.

Note the base: Delaware calculates on the gain, not the gross price. A seller with a small gain owes a small payment even on a large sale, which is friendlier math than price-based states.

How 1031 Exchangers Claim the Exemption: REW-EST Part 5

Part 5 of the REW-EST lists exemption categories, including transfers where the gain is exempt from recognition under federal or Delaware law. IRC Section 1031 nonrecognition falls squarely within that box. When a Part 5 box is checked, Parts 6 through 8 of the form are skipped and no payment is due at recording.

Coordinate this before closing. Your settlement attorney completes the REW-EST, and your qualified intermediary documentation needs to be in place to support the exemption claim. A qualified intermediary is the independent party that holds your sale proceeds during an exchange. WealthBuilder 1031 prepares exchange documentation that supports the Part 5 certification.

If you expect to recognize some gain, for example because you are taking cash boot, talk to your tax advisor about how to complete the form. The exemption covers nonrecognized gain; recognized gain remains subject to the estimated tax declaration.

No Claw-Back After You Exchange Out

Delaware has no claw-back rule. Once your exchange completes, there is no annual Delaware filing tied to the deferred gain, even if your replacement property is in another state. The deferred gain carries over in your basis under the normal federal rules.

Federal Taxes Still Apply

A Delaware exchange defers two layers: federal and state. Here is what a taxable sale looks like without an exchange, using round numbers.

Example: $1,000,000 sale of a Delaware rental. Original purchase $600,000, with $100,000 of depreciation taken, so the adjusted basis is $500,000 and the total gain is $500,000.

Figures are illustrative and rounded. Your rates depend on income, filing status, and basis. Run your own numbers with our 1031 exchange calculators, then confirm them with your tax advisor.

Risks and Things That Go Wrong in Delaware Exchanges

• REW-EST completed wrong. If Part 5 is not checked, the form computes a payment on the declared gain and the recorder expects it. Recovering an overpayment means filing a Delaware return and waiting.
• Late exchange setup. The Part 5 exemption depends on the transfer actually qualifying for 1031 nonrecognition. Exchange documents must be signed before closing.
• Boot surprises. Cash taken at closing or mortgage relief not offset with new debt or additional cash creates recognized gain that the exemption does not cover.
• Failed deadlines. The federal 45-day identification and 180-day completion rules apply with no state extensions. See the IRS rules for 1031 exchanges.
• Stale form references. Older guides cite Form 5403 and old rates. Use the current REW-EST and instructions.
• Deferral is not elimination. The IRS and Delaware will tax the deferred gain when you eventually cash out. Plan the exit, not just the exchange.

Delaware 1031 Exchange FAQs

Do I pay Delaware tax at closing on a 1031 exchange?
Not on a qualifying exchange. Check the applicable Part 5 exemption box on Form REW-EST and no estimated tax payment is due at recording.

Is Form 5403 the same as Form REW-EST?
Yes. Delaware renamed Form 5403 as REW-EST. Some county materials still use the old number.

What rate applies if I do owe the estimated tax?
6.6% of the gain for individuals and most taxpayers; 8.7% for C corporations. It is calculated on gain, not sales price.

Can I buy replacement property outside Delaware?
Yes. There is no in-state replacement requirement and no claw-back or annual tracking afterward.

Is the payment at recording an extra tax?
No. It is estimated income tax, credited when you file your Delaware return.

Sources

• 30 Del. C. Sections 1126, 1606, 1909
• Delaware Division of Revenue, Form REW-EST and Instructions (current revision)
• Tax Foundation, State Individual Income Tax Rates and Brackets, 2026

Want to learn more?

Our 1031 exchange guide covers the full process from sale to replacement. Ready to start a Delaware exchange? WealthBuilder 1031 is attorney-owned, serves all 50 states, and charges a flat $1,000 fee. Start at WealthBuilder1031.com or call 888-508-1901.

This page does not constitute legal or tax advice. Consult your attorney and tax advisor about your specific situation.

Ready to start your Delaware 1031 exchange? WealthBuilder 1031 acts as your qualified intermediary for a flat $1,000 fee, $750 at your sale and $250 at your purchase. See our Delaware 1031 exchange services to get started.