1031 Exchanges in Pennsylvania: Rules, Taxes, Insurance, and the Long Arc

A Shop 1031 research page. Reviewed 2026-06-03. Every claim sourced; sources collected at the foot of the page.

Pennsylvania is a newly-conforming high-transfer-tax state with the heaviest municipal transfer-tax stack in the country (Philadelphia), not a uniform Mid-Atlantic jurisdiction. The distinction matters because Pennsylvania moved from non-conformity to federal §1031 conformity at the state income tax level effective for tax years beginning after December 31, 2022 (Act 53 of 2022), but the realty transfer tax stack at recording does not benefit from §1031 treatment and runs as high as 4.578 percent of consideration in Philadelphia following the July 1, 2025 city-rate increase. Pennsylvania taxes recognized boot at the flat 3.07 percent rate on the personal income tax side; corporate transactions follow the Corporate Net Income Tax framework.

§1. 1031 mechanics in Pennsylvania

The federal floor applies under 26 U.S.C. §1031 and 26 C.F.R. §1.1031(k)-1. ^{1 2}

Pennsylvania moved from non-conformity to federal §1031 conformity at the personal income tax level under Act 53 of 2022, effective for tax years beginning after December 31, 2022. Prior to the 2023 conformity, Pennsylvania historically treated §1031 exchanges as taxable events for Pennsylvania Personal Income Tax purposes. Following Act 53, a properly executed §1031 exchange that defers gain federally also defers it for Pennsylvania personal income tax. Recognized boot is taxed at the Pennsylvania flat individual income tax rate of 3.07 percent. The Corporate Net Income Tax (currently 8.49 percent on stated trajectory toward 4.99 percent by 2031) applies separately to C-corporation gain. ^{3 4}

Pennsylvania imposes a Realty Transfer Tax under 72 P.S. §8101-C at 1 percent of consideration at the state level. Local political subdivisions are authorized to impose additional local realty transfer taxes. Most Pennsylvania municipalities impose an additional 1 percent (combined state-plus-local rate of 2 percent), but Philadelphia imposes a city realty transfer tax that was 3.278 percent through June 30, 2025 and increased to 3.578 percent effective July 1, 2025. The combined Philadelphia state-plus-city realty transfer tax is therefore 4.578 percent of consideration effective July 1, 2025. On a $5,000,000 Philadelphia commercial acquisition, the combined realty transfer tax runs $228,900. The realty transfer tax is paid by the grantor by statute, though contracts can shift the allocation. There is no §1031 exemption from the realty transfer tax. ^{5 6 7}

Pennsylvania amended regulations have addressed certain technical issues with §1031-related transfers, including the treatment of assignments of purchase agreements; counsel review is appropriate for complex exchange structures.

Pennsylvania imposes no state-level QI registration regime.

Pennsylvania is an attorney-state for real estate closings.

§2. Property tax in Pennsylvania

Pennsylvania has an effective property tax rate of approximately 1.49 percent of owner-occupied housing value, above the 1.02 percent national median. The structural mechanics are governed by 72 P.S. and the General County Assessment Law. Pennsylvania has no state-administered property tax; assessment and rate-setting occur at the county and municipal level, with significant inter-county variation in assessment ratios and reappraisal cycles (some Pennsylvania counties have not been reassessed in decades, producing material assessment-to-market-value gaps). ⁸

Harlow’s note on unit economics. On a $5,000,000 Pennsylvania commercial acquisition, year-one property tax runs roughly $50,000 to $100,000 depending on the specific county-municipality-and-school-district stack and the county’s reappraisal status. Counties that have recently reassessed will have property tax bills more closely calibrated to market value; counties with stale base years can produce favorable hold-period economics that compress on the next reassessment.

§3. Property insurance in Pennsylvania

Pennsylvania property insurance is dominated by severe-thunderstorm, tornado, ice-storm, and winter exposure across the state. The Pennsylvania Department of Insurance regulates carrier conduct. ⁹

Harlow’s note on unit economics. For a $5,000,000 Pennsylvania commercial property, expect property-insurance expense in the range of 0.4 to 0.8 percent of insured value.

§4. Demographic trends

Pennsylvania’s population stood at approximately 13.0 million as of 2025 Census estimates, with roughly flat growth. Net domestic migration has been negative for most of the past decade. ^{10 11}

Median household income in Pennsylvania was approximately $76,000 in 2024, slightly above the national median. ^{12 13}

The major Pennsylvania markets are Philadelphia-Camden-Wilmington (approximately 6.25 million population including the New Jersey and Delaware portions), Pittsburgh (approximately 2.3 million), Allentown-Bethlehem (Lehigh Valley, approximately 875,000), Harrisburg-Carlisle (approximately 600,000), Lancaster (approximately 560,000), and Scranton-Wilkes-Barre (approximately 575,000). Philadelphia concentrates the deepest commercial market in the state; Pittsburgh has the broadest cap-rate range across asset classes; the Lehigh Valley is the strongest industrial absorption market driven by I-78 logistics; Lancaster carries the strongest growth signal in the southeast.

§5. Unique legal and financial considerations

The first is the Philadelphia realty transfer tax stack, addressed in §1. The post-July 2025 increase to 4.578 percent combined is the most consequential closing-cost differential in Pennsylvania.

The second is the recency of state §1031 conformity. Pennsylvania exchanges completed before tax year 2023 followed pre-conformity rules that treated the exchange as a Pennsylvania-taxable event; Pennsylvania exchanges in 2023 and forward benefit from federal conformity at the personal income tax level. Counsel review confirms applicable treatment for transactions spanning the conformity transition.

The third is the inter-county assessment variation, addressed in §2. Acquisitions in counties with stale base years carry different hold-period economics than acquisitions in recently-reassessed counties.

The fourth is the Marcellus Shale and Utica Shale natural-gas overlay, which produces oil-and-gas leasing income on certain rural and agricultural properties and affects mineral severance analysis.

The fifth is the historic preservation overlay in Philadelphia, Pittsburgh, and Lancaster, where Federal Historic Tax Credit and state historic preservation incentives can produce favorable economics on qualifying adaptive-reuse acquisitions.

§6. Closing summary and the work ahead

The Pennsylvania 1031 exchanger is operating in a market with a clear set of distinguishing features. The federal floor applies; Pennsylvania conforms to §1031 at the personal income tax level effective for tax years after 2022; the flat 3.07 percent personal income tax rate applies to recognized boot; the Corporate Net Income Tax applies separately to corporate gain; the realty transfer tax stack runs 2 percent in most municipalities and 4.578 percent combined in Philadelphia post-July 2025; the property tax effective rate is above the national median with material inter-county assessment variation; insurance exposure is dominated by severe weather; demographic growth is roughly flat; the Marcellus and Utica Shale gas overlay affects mineral analysis; historic preservation incentives apply to qualifying adaptive-reuse. The jurisdiction-specific factors above are starting-point context. A state-experienced CRE professional will translate them into deal-specific judgment.

This page is the working map. The actual exchange is run by people. A Pennsylvania-licensed real estate attorney, a Pennsylvania-licensed CPA familiar with §1031 and the post-2022 conformity, a Qualified Intermediary, and a CRE professional who knows this market and these properties. Shop 1031 is the analytics layer that triages which deals deserve your time. The professionals do the work.

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Shop 1031 is an independent analytics platform. We are not a brokerage, a law firm, a tax advisor, a lender, or a Qualified Intermediary. Every 1031 exchange should be reviewed by a state-licensed real estate attorney, a CPA familiar with IRC §1031, and a QI. Brokerage and advisory services, when used, are provided by independently licensed third parties under separate engagement. This page is research, not advice. The Pennsylvania-specific surfaces discussed (post-2022 §1031 conformity transition under Act 53, Philadelphia 4.578 percent combined realty transfer tax effective July 1, 2025, inter-county assessment variation and reassessment timing, Marcellus and Utica Shale mineral severance, historic preservation overlay in major cities) each carry material risk if mishandled and should be addressed with a Pennsylvania-licensed attorney, a Pennsylvania-licensed CPA, and a Qualified Intermediary before identification, not after.

Federal authority: 26 U.S.C. §1031; 26 C.F.R. §1.1031(k)-1.

Pennsylvania authority: Act 53 of 2022 (§1031 conformity); 72 P.S. §8101-C et seq. (Realty Transfer Tax); 72 P.S. (Personal Income Tax, Corporate Net Income Tax); Philadelphia Code §19-1400 et seq. (city RTT).

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