1031 Exchanges in Washington, D.C., and Across the Line into Maryland and Virginia
The federal exchange rules are the same on both sides of the Potomac. The closing costs and filings are not. DC, Maryland and Virginia each tax the deed differently, and Maryland withholds income tax from a nonresident seller at settlement unless an exemption certificate is obtained. Map each property to its own jurisdiction before you sign.
This page is about the District of Columbia. For Washington State, see the Washington State page.
On this page
Start here: where are you in the sale?
- Selling first (the usual order). Set up the exchange before the closing date. The clocks run from the day the relinquished property transfers: 45 days to identify, and the earlier of 180 days or your return due date (with extensions) to finish (26 U.S.C. §1031(a)(3)).
- Buying first. A reverse exchange must be arranged before you buy; an exchange accommodation titleholder holds title under Rev. Proc. 2000-37. Its clocks run from the day the titleholder takes title, not from a sale. See reverse 1031 exchange.
- Already closed and received the money. That is treated as a sale (26 CFR §1.1031(k)-1(f)). A CPA can advise on this year's return.
What the federal exchange covers, and what it doesn't
Section 1031 defers federal income tax on the gain when you exchange real property held for investment or business use for other such property. District of Columbia gross income is defined by reference to the Internal Revenue Code (D.C. Code §47-1803.02), which is how federal non-recognition normally carries through. Whether a particular owner also faces other DC business taxes is a question for a DC tax adviser.
What the exchange does not do is change the taxes on the deeds. None of the three jurisdictions' exemption provisions we read mentions like-kind exchanges.
One transaction, three rulebooks
Checked September 30, 2026 against the statutes and official forms linked below. Rates change; each links to its source.
| District of Columbia | Maryland | Virginia | |
|---|---|---|---|
| Tax on the deed | Transfer tax 1.1% of consideration, plus an additional 0.35% except on residential property sold for less than $400,000 (D.C. Code §47-903). Recordation tax 1.1%, plus the same additional 0.35% (§42-1103). | State transfer tax 0.5% (Tax-Property §13-203). Recordation tax and county transfer tax set by each county (§12-103). | State recordation tax 25¢ per $100 of consideration or value, whichever is greater (Va. Code §58.1-801); grantor's tax 50¢ per $500 (§58.1-802); local recordation tax up to one-third of the state tax (§58.1-814). |
| Who the statute makes liable | Transfer tax: the transferor (the buyer is jointly liable if it goes unpaid). Recordation: the parties, jointly and severally. | Varies by tax and county; ask the settlement agent. | Grantor's tax: the grantor, unless the parties agree otherwise. |
| Income-tax withholding at settlement | Ask your settlement agent; not covered here. | Yes, for nonresident sellers: 8.75% for individuals, estates and trusts; 8.25% for entities, for sales after June 30, 2025 (Comptroller Tax Alert, April 13, 2026). | Nonresident property owners register with Virginia Tax (Form R-5 / R-5E). |
| Exchange-specific form | None found | Form MW506AE: apply at least 21 days before settlement for a certificate of full or partial exemption, with a letter signed by the qualified intermediary stating the transferor, the property, that it acts as qualified intermediary in a §1031 exchange, and any boot. Boot is the taxable amount. | None found |
| Rules for exchange facilitators | None found | None found | Exchange Facilitators Act (Va. Code §§55.1-800 to -806): segregated or qualified escrow/trust accounts, $250,000 errors-and-omissions coverage (or an equivalent deposit), no commingling, civil penalties. |
Never add these rows together. A DC sale does not create a Maryland withholding obligation; a Maryland sale by a DC resident does.
The three questions to answer before any DC-area closing
- Where is each property? DC, which Maryland county, which Virginia city or county. The deed taxes follow the property, not you.
- Where do you live, and how do you hold title? Maryland withholding applies to nonresident sellers of Maryland property, individuals and entities alike, at different rates. A DC or Virginia resident selling in Maryland needs the MW506AE application in at least 21 days before settlement to avoid withholding on exchange proceeds.
- Who is your settlement agent, and do they know it is an exchange? The settlement statement should show proceeds going to the qualified intermediary, and a Maryland settlement agent needs the exemption certificate at recording.
Before-closing checklist
| # | Item | Who |
|---|---|---|
| 1 | List each property with its jurisdiction (DC / Maryland county / Virginia locality) | You |
| 2 | Confirm the seller entity and the entity that will buy; confirm investment or business use | You + CPA |
| 3 | Choose the qualified intermediary; for Virginia property, ask in writing how it meets the Exchange Facilitators Act (account type, E&O) — see questions to ask any QI | You |
| 4 | Sign the exchange agreement before the closing date | You + QI |
| 5 | Maryland sale by a nonresident: file Form MW506AE at least 21 days before settlement, with the QI's letter (boot stated) | You or your CPA + QI |
| 6 | Assignment of the sale contract with written notice to the buyer on or before closing | QI + settlement agent |
| 7 | Wiring instructions: net proceeds to the exchange account | Settlement agent + QI |
| 8 | Review the draft settlement statement: deed taxes for that jurisdiction, payoffs, QI as recipient | You + CPA |
| 9 | Virginia nonresident seller: R-5 / R-5E registration handled | Settlement agent |
| 10 | Enter the closing date in the deadline calculator; plan a return extension if closing late in the year | You + CPA |
| 11 | Budget the deed taxes on the purchase side for the replacement's jurisdiction | You |
Watch
General rule explainer — not recorded for Washington, D.C.
It's Not Six Months. It's 180 Days. · 23 seconds
The clip covers only the length of the exchange period. The period ends on the earlier of day 180 or your tax-return due date including extensions; see the exchange period and your tax return.
A hypothetical sequence
Hypothetical — not a client and not a result. A District resident owns a rental condominium in Montgomery County, Maryland, and wants to buy a rowhouse to rent out in the District. Because the seller is not a Maryland resident, the Maryland settlement agent must withhold 8.75% of the payment at recording unless a certificate of exemption is presented, so the MW506AE application goes in at least 21 days before settlement with the intermediary's letter. The Maryland deed carries the state transfer tax and Montgomery County's own taxes. On the District purchase, DC recordation tax applies to the new deed. The investor's CPA reviews both settlement statements, and the District purchase must close by the earlier of day 180 or the return due date.
Frequently asked questions
Is this page about Washington State?
No. It covers the District of Columbia and nearby Maryland and Virginia. Washington State has different taxes, including a real estate excise tax; see the Washington State page.
Does a 1031 exchange avoid DC transfer or recordation tax?
The DC Code sections that impose and exempt these taxes do not mention like-kind exchanges in the text we reviewed (§§47-902, 47-903, 42-1102, 42-1103). Plan for them unless a DC attorney tells you otherwise.
I live in DC and I'm selling a rental in Maryland. Will tax be withheld?
Maryland requires withholding from nonresident sellers at recording: 8.75% for individuals and 8.25% for entities for sales after June 30, 2025, unless you obtain a certificate of exemption. For a §1031 exchange, apply on Form MW506AE at least 21 days before settlement, with a letter from your qualified intermediary. Any boot remains taxable.
Does Virginia regulate qualified intermediaries?
Yes. Virginia's Exchange Facilitators Act (Va. Code §§55.1-800 to -806) sets account, insurance and conduct rules. We found no comparable statute in the District or Maryland. Federal tax rules define what a qualified intermediary does but do not license them.
Can the replacement be in a different jurisdiction from the sale?
Yes. U.S. real property is like-kind to other U.S. real property; 26 U.S.C. §1031(h) excludes only foreign property. Each property's closing follows its own jurisdiction's rules.
Who you'll work with
Leah Badach is a Certified Exchange Specialist with 11+ years of 1031 exchange experience. Before you sign, Leah confirms in writing which qualified intermediary will hold your funds and gives you its account, bond and insurance documents. Ask for those documents from any intermediary you consider. You can verify the credential in the FEA CES directory.
Related: Maryland · Virginia · Buying replacement property out of state · 1031 exchange timeline · Deadline calculator · Form 8824 · Questions to ask any QI
Sources
- 26 U.S.C. §1031: (a)(3) identification and exchange periods; (h) U.S. and foreign real property.
- 26 CFR §1.1031(k)-1: actual and constructive receipt; qualified intermediaries.
- Rev. Proc. 2000-37: reverse exchanges through an exchange accommodation titleholder.
- D.C. Code §47-903 (deed transfer tax) and §42-1103 (recordation tax); §47-1803.02 (gross income).
- Maryland Tax-Property §13-203 and §12-103; Comptroller Tax Alert, April 13, 2026; Form MW506AE (2026).
- Va. Code §58.1-801, §58.1-802, §58.1-814; Virginia Tax: nonresident property owner registration; Va. Code §§55.1-800 to -806.
Educational information, not tax or legal advice.
Selling or buying across DC, Maryland and Virginia?
Send Leah where each property is and your closing date. She will map which rules apply to each side.
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