In general, the rules and processes for conducting a 1031 exchange in Connecticut are similar to those in other states across the United States, as these are governed by federal tax law under Section 1031 of the Internal Revenue Code. However, there are a few nuances and local considerations that might make a 1031 exchange in Connecticut unique:
In Connecticut, the fundamental principles of a 1031 exchange, such as the requirement to reinvest the proceeds into a like-kind property and the timelines for identification and acquisition of the replacement property, remain consistent with federal law. Always ensure you have the right team and resources to guide you through the process effectively.
The Combined Rate accounts for Federal, State, and Local tax rate on capital gains income, the 3.8 percent Surtax on capital gains and the marginal effect of Pease Limitations (which results in a tax rate increase of 1.18 percent).
Connecticut has a complex set of phase-out provisions. For each single taxpayer whose Connecticut AGI exceeds $56,500, the amount of the taxpayer's Connecticut taxable income to which the 3% tax rate applies shall be reduced by $1,000 for each $5,000, or fraction thereof, by which the taxpayer's Connecticut AGI exceeds said amount. Any such amount will have a tax rate of 5% instead of 3%. Additionally, each single taxpayer whose Connecticut AGI exceeds $200,000 shall pay an amount equal to $90 for each $5,000, or fraction thereof, by which the taxpayer's Connecticut AGI exceeds $200,000 but is less than $500,000, and by an additional $50 for each $5,000, or fraction thereof, by which the taxpayer’s AGI exceeds $500,000, up to a maximum payment of $3,150. For each MFJ taxpayer whose Connecticut AGI exceeds $100,500, the amount of the taxpayer's Connecticut taxable income to which the 3% tax rate applies shall be reduced by $2,000 for each $5,000, or fraction thereof, by which the taxpayer's Connecticut AGI exceeds said amount. Any such amount of Connecticut taxable income to which, as provided in the preceding sentence, the 3% tax rate does not apply shall be an amount to which the 5% tax rate shall apply. Each MFJ taxpayer whose Connecticut AGI exceeds $400,000 dollars shall pay, in addition to the amount above, an amount equal to $180 for each $10,000, or fraction thereof, by which the taxpayer's Connecticut AGI exceeds $400,000, up to a maximum of $5,400, and a further $100 for each $10,000, or fraction thereof, by which Connecticut AGI exceeds $1 million, up to a combined maximum payment of $6,300. Connecticut taxpayers are also given personal tax credits (1-75%) based upon adjusted gross income. Connecticut has a "tax benefit recapture," by which many high-income taxpayers pay their top tax rate on all income, not just on amounts above the benefit threshold.
