Delaware Form 5403 (Now Form REW-EST) for a 1031 Exchange

Form 5403 became REW-EST, and the rule underneath did not change

The Division of Revenue's Form 5403 instructions revised November 2018 and the REW-EST instructions revised July 31, 2024 open with the same sentence: every nonresident individual, pass-through entity or corporation who makes, executes, delivers, accepts or presents for recording any document, except the exemptions in sections 1126, 1606 and 1909 of Title 30, shall pay an estimated tax at a rate of 8.7% for C corporations and 6.6% for all other entities of the value of the gain on the property sold, payable at the time of recording and paid by the seller. The business tax forms page now lists only REW-EST, its instructions, and the REW-SCH schedule.

Section 1126 is the authority. It requires a nonresident who sells or exchanges Delaware real estate to file, before the deed is recorded, either a declaration of estimated tax computed on an estimate of the gain recognized, an alternative form computing tax on net proceeds after recorded liens, or a form claiming that the sale or exchange is exempt from recognition of gain or that the gain is excluded, citing the relevant Internal Revenue Code provision. The Recorder receives the form and any payment with the deed; title agents, lenders and brokers are expressly not liable for the amounts.

The form header says it must be completed for all conveyances and presented at the time of recording. A Delaware resident completes it too, checking the first Part 5 box that the seller is a resident individual, pass-through entity or corporation not subject to withholding. Keep calling it 5403 if you like, but the document your attorney files in 2026 says REW-EST.

Part 6 computes the estimated tax when no exemption applies

Part 6 runs from total sales price (6a) less selling expenses (6b) to net sales price (6c), subtracts adjusted basis (6d) to reach total gain (6e), and multiplies by 6.6% or 8.7% on line 6f. Adjusted basis includes the original purchase price, non-deductible closing costs and improvements, reduced by depreciation previously taken. The amount on 6f is entered in Part 8 and paid with the deed.

Hypothetical: a Pennsylvania resident sells a Rehoboth Beach rental for $1,200,000 with $70,000 of selling costs and an adjusted basis of $500,000. Gain on line 6e is $630,000 and the estimated tax on line 6f is $41,580, paid at the Recorder's counter. The same sale inside a completed exchange pays nothing at recording. Run your own numbers with your CPA, since depreciation and improvements move line 6d.

The form carries its own penalty for silence. If Part 6 is not filled out or is incomplete and no Part 5 box is checked, the required 6.6% or 8.7% will be withheld from the net proceeds at settlement and submitted to the Division of Revenue. A pass-through entity with nonresident members lists its own EIN and completes Form REW-SCH showing each member's share of the payment; omitting it delays the members' returns.

The exchange box is the second line of Part 5, and only one box may be checked

Part 5 offers four boxes: the seller is a resident not subject to withholding; the sale or exchange is exempt from gain realization (the instructions describe it as exempt from capital gain recognition because of either a federal or Delaware exemption); the gain realized is excluded from income for the tax year of sale; or the sale is exempt due to foreclosure under section 1126(b)(3a)(3). If any box is checked, the form says stop, do not complete Parts 6, 7 and 8, and no payment is due at this time.

A fully deferred section 1031 exchange is the second box. Section 1126 asks for the Code provision supporting the claim, so write section 1031 and a one-line description of the exchange on the Part 1 description area, which the instructions say may be used to describe transfer issues, and keep the exchange agreement with the settlement file. The seller signs under penalty of perjury; a preparer's declaration is based on the information the preparer has.

Part 3 is worth a glance even in the year you sell. It asks how the seller acquired the property and lists 1031 Exchange among purchase, gift, inheritance and foreclosure. When a Delaware property acquired in an earlier exchange is sold, that box is checked, and the carried-over basis on line 6d is what drives the gain; the arithmetic is explained under basis in replacement property after a 1031.

Boot, partial exchanges and exchanges that fail after recording

Part 5 has no partial-exemption box and the instructions are silent on recognized boot. The statute, however, bases the declaration on an estimate of the gain recognized on the sale or exchange, so a seller who will recognize gain on cash boot leaves Part 5 blank, completes Part 6 with the recognized gain as the estimate on line 6e, and pays 6.6% of that figure at recording. Attach the computation and the exchange documents so the Recorder's copy shows why line 6e is smaller than the arithmetic of 6c less 6d would suggest.

Part 7, the installment-sale box, states the principle that governs a failed exchange: when you recognize any gain arising from the sale of property in Delaware, you must report and remit the tax due to the State of Delaware on that transaction. An exchange that collapses after the deed records is not re-declared on REW-EST; the gain is reported on the Delaware nonresident return for the year it is recognized, with estimated tax exposure in the meantime. Your options after a failed exchange are federal questions first.

Any estimated tax paid at recording is a credit on the Delaware return and comes back as a refund after filing. It cannot be redirected to the intermediary, so the Part 5 box has to be right on the day of recording; the general rules on state withholding at closing explain the cash-flow consequence for the replacement side.

Transfer tax is separate, and Delaware does not follow the gain afterward

The REW-EST exemption does nothing for Delaware's realty transfer tax, which is a different return filed with the same deed and has no like-kind exchange exemption; the rate and split are covered on the Delaware state page. Budget it as a closing cost and check whether paying it from exchange funds creates boot under closing costs paid from exchange funds.

Once the deed records with the exemption box checked, Delaware has no annual form that tracks deferred gain into replacement property elsewhere. An exchange of Delaware property for a Delaware Statutory Trust interest holding property in another state leaves nothing to file in Delaware until the trust's property is sold, and even then only if the gain is Delaware-source.