Arizona 1031 Exchange & Investment Advisors

1031 Exchange in Arizona

Arizona generally includes capital gains from real estate in taxable income and applies its 2.5% individual income tax rate. Federal tax on a taxable real estate sale can also include long-term capital gains tax, depreciation-related tax, and, for some taxpayers, the 3.8% Net Investment Income Tax. The actual combined liability depends on the investor’s income, basis, depreciation history, holding period, and eligibility for Arizona-specific adjustments. A properly structured 1031 exchange can defer eligible federal and Arizona gain when the requirements of Section 1031 are satisfied.

For example, an investor selling an appreciated Phoenix multifamily property may face federal capital-gains tax, depreciation-related tax, possible Net Investment Income Tax, and Arizona income tax if the gain is recognized in a taxable sale. A qualifying 1031 exchange can preserve more of the sale proceeds for reinvestment by deferring eligible gain rather than requiring the investor to recognize it at the time of the sale.

Arizona allows a subtraction equal to 25% of qualifying net long-term capital gain included in federal adjusted gross income when the gain is derived from an investment in an asset acquired after December 31, 2011. For qualifying gain, the subtraction can reduce the portion of the gain subject to Arizona’s 2.5% individual income tax. Eligibility depends on the property, acquisition date, taxpayer, and other facts, so investors should confirm the available subtraction with their tax professional.

Arizona generally follows the federal Section 1031 framework for determining whether eligible real-property gain is deferred. Nonresident owners who sell Arizona real estate may still have Arizona income-tax filing or reporting obligations when Arizona-source income or gain is recognized. Arizona also imposes information-reporting requirements on escrow agents for certain real estate transactions. Investors should have their tax professional determine the Arizona filing consequences of their specific transaction. A qualified intermediary must be engaged before the taxpayer receives or controls exchange proceeds in a typical deferred 1031 exchange.

1031 Exchange Place serves investors throughout the Phoenix, Scottsdale, Tucson, and Mesa markets. Whether you are selling a commercial property in the Camelback Corridor, a warehouse in the East Valley, or a multifamily asset in Tucson, meeting the 45-day identification and 180-day closing deadlines requires coordination that benefits from direct knowledge of the Arizona market.

Tenants in Common in Arizona

Tenants in Common ownership gives multiple investors a deeded fractional interest in a single property, held independently without creating a partnership or corporate entity. Each co-owner can use their interest as either the relinquished or the replacement leg of a 1031 exchange, making TIC a viable structure for investors who want to step into or out of co-ownership while deferring the tax consequence.

Arizona’s commercial real estate market, particularly in the Greater Phoenix area, has attracted consistent interest in institutional-grade properties that individual investors could not acquire alone. TIC investments provide a path into larger retail centers, industrial properties, and office assets across Scottsdale, Tempe, Chandler, and the broader Maricopa County market at a fractional ownership level that a direct single-buyer acquisition would not otherwise allow.

Because Arizona uses a flat income tax rate of 2.5%, co-owners in an Arizona TIC property all report their share of rental income and eventual gain under the same rate structure, regardless of income level. This uniformity simplifies the income reporting picture for co-ownership arrangements compared to states where co-owners in different income brackets face meaningfully different marginal rates on the same property’s income.

Delaware Statutory Trusts in Arizona

A Delaware Statutory Trust is a fractional ownership structure recognized under IRS Revenue Ruling 2004-86 as qualifying replacement property in a 1031 exchange. Investors acquire a beneficial interest in a trust that holds a single property or portfolio, with a professional sponsor managing all operations. The investor receives their proportional share of income and, eventually, sale proceeds without taking on any landlord responsibilities or day-to-day management obligations.

For Arizona investors completing a qualifying DST 1031 exchange, eligible federal and Arizona gain may be deferred when the DST interest and exchange otherwise satisfy Section 1031. The amount of tax deferred depends on the investor’s basis, gain, depreciation history, income, and individual tax circumstances. Out-of-state investors who receive Arizona-source income from DSTs owning Arizona property may also have Arizona nonresident filing obligations. Investors should confirm the applicable Arizona-source income and filing requirements with their tax professional.

Arizona investors considering a DST should understand that most sponsors require accredited investor status, which generally means a net worth of $1 million or more excluding a primary residence, or annual income of $200,000 or more. Minimum investment thresholds typically range from $25,000 to $100,000 depending on the offering. Before committing capital, reviewing the full Delaware Statutory Trust risks, including illiquidity, the inability to refinance or make operational decisions once the trust is formed, and sponsor concentration risk, is an essential step before proceeding.