Seacoast 1031 Basics For North Hampton Investors

Thinking about selling a Seacoast rental and worried about the tax hit? If you own investment property in North Hampton, a 1031 exchange can keep more of your equity working by deferring federal capital gains tax. With local prices and competition still strong, timing and structure matter. In this guide, you’ll learn the core 1031 rules, North Hampton specifics, and practical steps to complete an exchange with confidence. Let’s dive in.

1031 exchange in one minute

A 1031 exchange lets you sell real property held for investment or business and buy other like-kind real property while deferring federal capital gains tax. Your personal residence does not qualify. The IRS requires strict timelines, proper documentation, and use of a Qualified Intermediary to hold funds. You report the exchange on Form 8824 with your tax return. For the full IRS overview, review the Instructions for Form 8824 and Publication 544. Form 8824 instructions and Publication 544.

Key federal rules and timelines

Eligibility and like-kind

To qualify, both the property you sell and the one you buy must be real property held for investment or productive business use. Like-kind is broad for real estate. Raw land, rentals, and commercial buildings can often be exchanged for each other. See the IRS for definitions and reporting on Form 8824.

45-day and 180-day deadlines

You have 45 days from the sale of your relinquished property to identify replacement properties in writing, and 180 days to close on them. These deadlines are strict and rarely extended. Disaster relief can apply in narrow cases, so plan early and leave margin for delays. The IRS details these windows in the Form 8824 instructions.

Use a Qualified Intermediary

You cannot receive the sale proceeds. A Qualified Intermediary must hold the funds until you acquire the replacement property. If you take control of the money, the exchange fails. The IRS outlines exchange mechanics in Publication 544.

Reporting the exchange

You must file Form 8824 for the tax year of the exchange and retain all identification notices and closing statements. Review the Form 8824 instructions for line-by-line guidance.

Exchange types you can use

Deferred exchange

This is the most common path: sell first, then buy within the 45- and 180-day windows. See Form 8824 instructions.

Reverse exchange

If you find the ideal replacement property before you sell, a reverse exchange can help you secure it. The property is parked with an Exchange Accommodation Titleholder while you sell your relinquished asset. It is more complex and costlier but useful in competitive markets. IRS guidance is in Revenue Procedure 2000-37 and updates.

Improvement exchange

You can direct exchange funds to improvements on the replacement property within the exchange period using a Qualified Exchange Accommodation Arrangement. See IRS guidance in Revenue Procedure 2004-51.

North Hampton specifics that matter

State tax environment

New Hampshire does not tax personal wage income, and the state repealed its Interest and Dividends Tax for taxable periods beginning January 1, 2025. For many individual investors, deferred gains are a federal consideration only. Confirm entity and nonresident details with your tax advisor. See the NH DRA’s page on the Interest and Dividends Tax.

Real Estate Transfer Tax

New Hampshire charges a Real Estate Transfer Tax on title transfers, generally 0.75 percent to the state for each party. This applies whether or not you use a 1031 exchange, so budget it into your closing costs. Learn more at the NH DRA’s Real Estate Transfer Tax.

Property tax budgeting

Annual property taxes in Rockingham County are meaningful. When you analyze cash flow on a replacement property, confirm assessed value, mill rate, and any exemptions with the town assessor before you buy.

Zoning, ADUs, and short-term rentals

North Hampton has a zoning ordinance and is reviewing local ADU rules following state-level changes. Short-term rental regulations are evolving across coastal towns. Before you plan to add a unit, convert space, or operate a vacation rental, verify current rules with the Planning & Zoning Department and review the town’s zoning ordinance and Planning Board updates. Start with the zoning ordinance and the Planning Board page.

Coastal and environmental constraints

Coastal properties can involve shoreline, wetland, and floodplain permits that affect timelines and insurability. If you plan improvements during an exchange, build in time for approvals. See the Master Plan resources on the Planning Board pages.

Replacement property ideas on the Seacoast

• Direct purchase: single-family rentals, small multifamily, mixed-use, or land held for investment can all qualify when held for income or business use.
• Passive alternatives: Delaware Statutory Trusts allow fractional interests in institutional properties and can help you complete an exchange when timing is tight. They are passive and illiquid, with sponsor controls and specific IRS limits. Review the risks in this overview from Kiplinger on DSTs in 1031 exchanges.

Financing and debt pitfalls

If you replace your property with less debt than you had before, you may create taxable “mortgage boot.” Coordinate debt terms early and match or exceed your relinquished debt where needed. For a plain-English primer on common 1031 pitfalls, see this overview on mortgage boot and exchange basics.

Step-by-step checklist

1. Confirm qualification. Gather leases, income records, and marketing history to show investment use. Review the IRS Form 8824 instructions.
2. Build your search plan. Line up local options that meet your target price, cap rate, and timeline.
3. Choose a Qualified Intermediary early. Verify best practices, bonding, and use of segregated accounts. The FEA offers guidance and a directory at 1031.org.
4. Budget for NH transfer tax and closing costs. Confirm with your closing team. See the NH DRA’s Real Estate Transfer Tax.
5. Verify local use and permits. Confirm ADU allowances, STR rules, and any coastal permits with the town. Start with the zoning ordinance and Planning Board.
6. Consider advanced structures carefully. Reverse or improvement exchanges require experienced teams. See IRS guidance for reverse exchanges and improvement exchanges.
7. File and document. Keep identification letters, QI agreements, and closing statements, and file Form 8824 with your return.

What to avoid

• Choosing a QI without due diligence on fund custody and bonding.
• Taking constructive receipt of funds or hiring a disqualified person as your QI.
• Forgetting NH’s transfer tax and local closing costs in your replacement budget.
• Overlooking zoning, STR rules, or coastal permits that delay closing past 180 days.
• Buying DST interests without understanding illiquidity and sponsor control limits. See DST risks.

Local timing tips

The Seacoast remains competitive, which can tighten the 45-day identification window. Start your replacement search before you list, line up lending, and set backup options. If you must secure the new property first, a reverse exchange may fit, but it adds complexity and cost. Review the IRS framework for reverse exchanges.

Ready to plan your exchange?

If you are weighing a 1031 on the Seacoast, you deserve a plan that fits your goals and the North Hampton market. Our team can help you size your budget, scout viable replacements, and coordinate timing so your exchange stays on track. Start a conversation with Lombardi & Co.

FAQs

Can I use a 1031 exchange for a North Hampton beach cottage I sometimes rent?

• Only if the property is held for investment or business use, not primarily for personal use; the IRS details eligibility and reporting in the Form 8824 instructions.

Will New Hampshire tax my deferred capital gain from a 1031 exchange?

• New Hampshire generally does not tax personal capital gains, and the state repealed its Interest and Dividends Tax for tax periods beginning January 1, 2025; federal rules still apply. See the DRA’s page on the Interest and Dividends Tax.

What happens if I miss the 45-day identification deadline in a 1031 exchange?

• Missing the 45-day window is typically fatal to a deferred exchange, with limited relief only in certain disasters; see timing rules in the Form 8824 instructions.

Do North Hampton short-term rental or ADU rules affect my 1031 plan?

• Yes. Local zoning, ADU, and STR rules can change your cash flow and timing; verify current regulations with the town’s zoning ordinance and Planning Board before you buy.

What is a Delaware Statutory Trust in a 1031 exchange?

• A DST lets you buy a fractional interest in institutional real estate as replacement property; it is passive and illiquid with specific IRS limits. Read about risks in this DST overview.

Do I still pay New Hampshire’s Real Estate Transfer Tax in a 1031 exchange?

• Yes. The state transfer tax applies to title transfers even when you use a 1031; learn more at the DRA’s Real Estate Transfer Tax.