You worked hard to build real equity in your Hamptons property. A 1031 exchange lets you keep more of that money working for you instead of handing it over to the IRS. In the Hamptons, where prices are high, inventory is tight, and rental rules love to keep everyone on their toes, planning ahead matters. Here’s a clear breakdown of the basics, the Hamptons quirks, real world use cases, and a checklist so you can make smart moves without the usual headache. Let’s dive in.
First, a disclaimer: I am not a cpa or an attorney. Consult your attorney and accountant before you do anything related to a 1031 exchange. The following is just basic 1031 exchange information related to the Hamptons.
1031 basics in plain English
A 1031 exchange lets you defer capital gains tax when you sell investment or business real estate and buy other like-kind real estate you’ll hold for investment or business use. Since 2017, 1031 applies only to real property. It defers tax; it doesn’t erase it. The IRS lays out the rules and definitions in black and white:
https://www.irs.gov/businesses/small-businesses-self-employed/like-kind-exchanges-real-estate-tax-tips
Two hard deadlines rule the whole process:
45 days to identify your replacement property, and 180 days to close. Most people use a Qualified Intermediary to babysit the proceeds and file IRS Form 8824 come tax time:
https://www.irs.gov/forms-pubs/about-form-8824
Watch out for “boot.” Cash you take out or a drop in mortgage debt can trigger tax. Your adjusted basis rolls into the new property, and any depreciation you took before the exchange can come back for a future recapture moment. IRS guidance covers every painful detail:
https://www.irs.gov/businesses/small-businesses-self-employed/like-kind-exchanges
Why the Hamptons is different
Prices are high and choices are limited. Recent market reports show Hamptons median prices hovering around or above the $2M mark in 2025, which compresses your 45-day hunt for a suitable replacement.
https://www.compass.com/research/hamptons-market-reports/
Rental rules keep shifting. Inside the Village, a recent amendment requires a minimum two-week rental or two one-week rentals yearly — something every investor needs to factor into documented “investment use.” Always check whether the property sits in the Town or Village. Here’s the update on the Village’s new minimum rental period:
https://www.southamptonvillage.org/ (navigate to “News & Announcements”)
Transfer taxes show up at closing no matter what. New York State transfer tax, the 1 percent mansion tax on residential purchases over $1M, and the East End’s Community Preservation Fund surcharge all stay put — a 1031 doesn’t defer any of them.
https://www.tax.ny.gov/pit/property/transfer/index.htm
Hamptons 1031 use cases
Trade up to a compound
You sell a long-term rental in the Hamptons and buy a larger rental compound. To fully defer tax, match or beat your sale price and replace equal or greater debt. Move early — the 45-day identification period isn’t generous. If lightning strikes and the perfect property shows up before your sale, look into a reverse exchange.
Convert your vacation home first
If you want to 1031 out of a Hamptons vacation home, convert it to a bona fide rental. Follow the safe harbor in Revenue Procedure 2008-16: market-rate rentals, real documentation, and limited personal use. The Village’s two-week minimum still allows seasonal and monthly rentals that meet the safe-harbor requirements.
IRS safe harbor summary: https://www.irs.gov/pub/irs-drop/rp-08-16.pdf
Consolidate with DST or TIC
If you offload several small rentals and can’t find one local replacement, you can exchange into a Delaware Statutory Trust (DST) or Tenancy-in-Common (TIC). Both are recognized as real property for 1031 purposes.
DST guidance: https://www.irs.gov/pub/irs-wd/04-8604.pdf
Make sure you understand sponsor risk and liquidity issues before jumping in.
Buy first with a reverse exchange
In a fast-moving market, you might need to secure the replacement before selling the relinquished property. A Qualified Exchange Accommodation Arrangement parks the new asset while you get your sale done. More cost, more complexity — but it can save your deal.
Overview: https://www.irs.gov/pub/irs-drop/rp-2000-37.pdf
Exchange into other states
Sell in the Hamptons and buy anywhere in the U.S. — as long as it’s like-kind real property held for investment or business use. Run the state tax math before you get too excited about cap rates elsewhere.
Pitfalls to avoid
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Treating a personal-use home as an investment without proof. Follow Revenue Procedure 2008-16 and keep leases, ads, receipts, everything.
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Assuming a 1031 wipes the slate clean. Transfer tax, mansion tax, and the CPF surcharge are still due at closing.
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Replacing debt incorrectly. If your new mortgage is smaller or you take cash out, you may create boot.
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Waiting too long to pick your Qualified Intermediary. Vet them early, check bonding, understand their controls, and follow written ID rules.
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Overlooking DST risks. Sponsor weakness or a forced conversion can bite. Read the fine print.
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Underestimating the timing crunch. With only 45 days to identify, tight Hamptons inventory can derail everything. Have backups or consider reverse exchanges.
Hamptons 1031 checklist
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Confirm investment use. Gather leases, receipts, ads, management agreements. If converting a vacation home, stick to the safe harbor.
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Meet with your tax advisor early and choose your Qualified Intermediary before you list.
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Verify your jurisdiction and rental rules. Know if you’re in the Town or the Village and what permits matter.
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Choose your replacement strategy now — local trade-up, out-of-market, DST/TIC, or a reverse exchange.
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Model your closing costs. Include NY transfer tax, mansion tax, and the CPF surcharge when you run your numbers.
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Execute on schedule. Use the three-property or 200 percent ID rules and close within 180 days. Keep every closing and QI document for Form 8824.
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Think ahead. If you eventually want personal use, understand timing, holding periods, depreciation recapture, and limits on primary residence exclusions.
Let’s talk strategy
A 1031 isn’t just a tax move. It’s a planning move. It’s choosing the right property, lining up timing, and staying compliant with a market that loves to keep investors guessing. If you want a clean, realistic plan for the Hamptons, connect with Bill Williams and get your exchange lined up with the market, not against it.
FAQs
What is a 1031 exchange for Hamptons investors?
A federal tax deferral that lets you sell investment real estate in the Hamptons and buy other like-kind investment or business-use real estate while deferring capital gains tax.
How do the 45-day and 180-day deadlines work?
You have 45 days to identify your replacement property in writing and 180 days to close, using a Qualified Intermediary who holds the funds and reports on IRS Form 8824.
Do New York transfer taxes or the Peconic CPF get deferred?
No. Transfer tax, mansion tax, and the CPF surcharge are paid at closing and are not deferred.
Can I use a 1031 with a Hamptons vacation home?
Yes — if you first convert it to a rental and follow the Revenue Procedure 2008-16 safe harbor with documented market-rate rentals and limited personal use.
How do Village rental rules affect a 1031 plan?
The two-week minimum limits short stays. Seasonal and monthly rentals still work, but you must document investment use carefully.
When is a reverse exchange useful in the Hamptons?
When the perfect replacement hits the market before your sale. It adds cost, but it protects timing.
Local Hamptons tax professionals (active links)
Tax Attorneys:
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Twomey Latham (Riverhead / East End): https://www.tlrf.law/attorneys/
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Campolo, Middleton & McCormick (Bridgehampton): https://cmmllp.com/attorneys/
Accountants:
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Armao LLP (East End office): https://armaollp.com/
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Markowitz, Fenelon & Bank LLP (Riverhead / Southampton area): https://www.mfbcpa.com/
- Van Dyke and Hand. East Hampton.
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