The short answer
State conformity to section 1031 is the degree to which a state's income tax adopts the federal like-kind exchange rule, so that gain deferred on your federal return is also deferred on your state return. States adopt the Internal Revenue Code either on a rolling basis, taking amendments as Congress makes them, or as of a fixed date their legislature updates. Each state decides for itself: Pennsylvania did not follow section 1031 until 2023, and California keeps tracking deferred gain after you exchange out of the state.
At a glance
| Rolling | The state adopts the Code as amended, so federal changes flow through automatically |
|---|---|
| Fixed date | The state adopts the Code as of a set date, such as Maine's December 31, 2024 |
| Pennsylvania | Personal income tax follows section 1031 for tax years beginning after December 31, 2022 |
| California | Conforms to the Code as of January 1, 2025, and tracks deferred gain on Form FTB 3840 |
Conformity is set by each state's own statute, in one of two ways
A rolling-conformity state ties its tax to the Code as it stands each year. Iowa is an example: Iowa Code section 422.3 defines the Internal Revenue Code for tax years beginning on or after January 1, 2020 as the Code of 1986 "as amended," with no cutoff date.
A fixed-date state adopts the Code as of a specific day and must pass a new law to pick up later federal changes. Maine's 36 M.R.S. section 111 defines "Code" as the Code and its amendments as of December 31, 2024. The California Franchise Tax Board states that California law generally conforms as of January 1, 2025, and that for tax years beginning on or after that date like-kind exchanges are limited to real property.
Because section 1031 has been limited to real property since 2018, timing gaps mostly affected personal property. California, for example, allowed personal property exchanges initiated after January 10, 2019 and completed before 2025 for individuals with adjusted gross income under $250,000, or $500,000 for joint filers.
Worked example: Pennsylvania's late conformity under Act 53 of 2022
Pennsylvania's personal income tax computes gain on its own rules, and its classes-of-income section long cited only section 1035 of the Code. Act 53 of 2022 amended section 303(a.5) to make the requirements of sections 1031 and 1035 applicable, for transactions in tax years beginning after December 31, 2022.
Hypothetical: a Pennsylvania resident exchanges a rental with a $500,000 gain. In a 2022 tax year, the exchange deferred federal tax but the full gain was taxable at the state's 3.07% rate, about $15,350. For a 2023 or later tax year, the Department of Revenue's PIT guide says the deferral is allowed. Run your own numbers with your CPA.
Where it bites: exchanging out of a state, and checking your own state's rules
Conformity does not end a state's interest when the replacement property is elsewhere. California requires Form FTB 3840 each year until the California-source deferred gain is recognized, and it may issue a proposed assessment if the form is not filed; see Form FTB 3840 and whether a 1031 defers state capital gains tax.
Withholding at closing is a separate question from conformity, and many states require an exemption form to avoid it; see states that withhold at closing. Each state 1031 page lists that state's conformity, withholding and transfer tax rules with sources.
Related questions
Does every state with an income tax follow section 1031?
Conformity is decided state by state in each state's statute, and Pennsylvania did not follow it until tax years beginning after December 31, 2022. Check your state on the state 1031 pages rather than assuming.
If I move to another state after an exchange, can my old state still tax the gain?
Some can. The California FTB requires annual Form FTB 3840 reporting until California-source deferred gain is recognized, even after later exchanges of the out-of-state property.
What happens in a fixed-date state when Congress changes section 1031?
The change does not apply for state purposes until the legislature moves its conformity date, as Maine does in 36 M.R.S. section 111. Until then, the state return follows the older version of the Code.
Sources
Checked against these publications on September 30, 2026. Rules and figures change; confirm the current version with your CPA or attorney before you act. This page is general information, not tax or legal advice.
- California Franchise Tax Board, Reporting like-kind exchanges
- Pennsylvania Act 53 of 2022 (HB 1342)
- Pennsylvania Department of Revenue, PIT Guide: Net Gains (Losses) from the Sale, Exchange, or Disposition of Property
- Pennsylvania Department of Revenue, Personal Income Tax
- Iowa Code section 422.3, Definitions
- Maine Revised Statutes, Title 36, section 111