Thinking about using a 1031 exchange to buy investment property in Severna Park? You are not alone. The area’s mix of suburban convenience and prized waterfront homes attracts investors who want long-term rental potential and strong lifestyle appeal. In this guide, you will learn the rules that always apply, the Maryland and Anne Arundel County steps that can make or break your timeline, and the local land-use issues to check before you identify a property. Let’s dive in.
1031 basics you need
Eligible property and intent
A 1031 exchange lets you defer, not eliminate, federal capital gains taxes when you swap investment or business real estate for other like-kind real estate. The property you sell and the property you buy must both be held for investment or business use, not for personal use. Since 2017, 1031 treatment applies only to real property. Review the IRS rules and reporting steps in the Form 8824 instructions.
Deadlines and identification
Two federal clocks control your exchange. You must identify replacement properties in writing within 45 calendar days after your sale closes. You must close on the replacement within 180 calendar days of that sale, or by your tax return due date if earlier. These periods run at the same time, and missing either deadline usually disqualifies the exchange. See the IRS timing rules in the Form 8824 instructions.
Use a qualified intermediary
In a delayed exchange, a qualified intermediary holds your sale proceeds. You cannot receive or control the funds. Engage a reputable QI before closing so your title company can route proceeds correctly. The IRS guidance explains why constructive receipt will break an exchange.
Boot and debt
If you receive cash or non-like-kind property (boot), or if the debt on your replacement is lower than the debt you paid off without adding cash, you can trigger taxable gain. Work with your CPA and QI to structure contract terms and financing that match or exceed your relinquished value and debt. The Form 8824 instructions outline how to report these items.
Maryland and county steps before closing
Nonresident withholding and MW506AE
If you live outside Maryland and sell Maryland real estate, the state generally requires withholding at closing. In a 1031 exchange, you can apply for an exemption certificate by filing Form MW506AE at least 21 days before settlement. The Comptroller issues a certificate (MW506E) that your title company uses to avoid withholding. Start early and coordinate with your QI and closing agent. See COMAR guidance on Maryland nonresident withholding and exemptions.
- If withholding is taken because the exemption was not in hand, those funds may be treated as received by you. That can jeopardize the exchange if not handled properly. Learn more about this risk and coordination with your QI from this industry overview.
Withholding rates to confirm
Industry bulletins frequently cite withholding rates around 7.5% for nonresident individuals and about 8.25% for nonresident entities, applied to the total payment. Rates and practices can change, so confirm current numbers with your title company or the Comptroller as you plan. See a summary in this practice bulletin.
County transfer and recordation taxes
Anne Arundel County charges a county transfer tax of 1.0% for transactions under 1,000,000 dollars and 1.5% for transactions at 1,000,000 dollars or more, plus recordation taxes. These costs are typically paid at closing and can be negotiated in the contract. Build them into your exchange math if you are trading up in value. Review current details on the county’s recordation and transfer tax page.
Title, recording, and coordination
Maryland deeds will not be recorded without required withholding or an exemption certificate on file. That means your title company will insist on the MW506E or the collection of withholding before recording. Avoid a day-of-closing surprise by alerting your QI and title company early, and by filing MW506AE on time. See common closing practices in this withholding summary.
Severna Park market factors
Property types and competition
Severna Park is a suburban market with many single-family homes and valued waterfront options along Chesapeake Bay tributaries. Inventory can be limited, and desirable homes often draw competitive offers. Have financing, inspections, and backups ready so you can act within the 45-day window.
Investment use for single-family
You can exchange into a single-family home in Severna Park if you hold it for investment or business use, such as a long-term rental. The IRS looks at facts and circumstances, including lease terms, marketing, and length of hold. Plan to document your intent and review the Form 8824 instructions for what to report.
Waterfront and Critical Area rules
A large share of Severna Park sits within Maryland’s Chesapeake Bay Critical Area. The county program includes a 100-foot shoreline buffer and rules for clearing, grading, docks, bulkheads, and living shorelines. Permits and mitigation plans can add time and cost, which matters if you are on a tight 180-day exchange schedule. Review county guidance on the Critical Area program.
Zoning checks for improvements
If you plan renovations or expansion, confirm zoning, setbacks, lot coverage, and any maritime or waterfront bulk rules early. These limits can affect your use and future value. Start with the county code’s zoning provisions and follow up with the county if you need clarity.
A step-by-step exchange plan
Before listing or selling your current property
- Talk with a 1031-experienced CPA or tax attorney about deferral, depreciation recapture, and reporting on Form 8824.
As soon as you decide to exchange
- Hire a qualified intermediary and confirm your title company will route proceeds to the QI. Missing this step can disqualify your exchange under IRS rules.
If you are a nonresident seller in Maryland
- File Form MW506AE at least 21 days before settlement to seek an exemption certificate (MW506E). Coordinate supporting documents with your QI and title company. See COMAR details on exemption timing.
At closing on your sale (the clock starts)
- Day 1: begin counting your 45-day identification and 180-day closing periods. Deliver written property identifications to your QI per IRS requirements.
While identifying Severna Park replacements
- Because inventory can be tight, line up realistic backups using the three-property or 200 percent rules. Have funding and inspections ready to keep offers competitive within 45 days.
Before buying in Severna Park
- Confirm county transfer and recordation taxes and who pays them in the contract. Use the county’s tax page to estimate costs.
- If waterfront or near the Bay, verify Critical Area status and permitting timelines for docks, bulkheads, or grading. Start with the Critical Area program.
At settlement on your replacement
- Ensure the title company and QI have all exchange documents, and if applicable, the MW506E to avoid withholding. See coordination tips in this withholding overview.
After closing
- Keep complete records and file Form 8824 with your federal return for the year of the exchange.
Quick Severna Park checklist
- Hire a qualified intermediary and alert your title company early.
- Consult a CPA on debt, boot, and depreciation recapture.
- If you are a nonresident, file MW506AE at least 21 days before closing.
- Budget for county transfer and recordation taxes in your numbers.
- Confirm Critical Area status and any shoreline or grading permits.
- Review zoning, setbacks, and coverage limits for planned improvements.
- Decide how you will document investment use if buying a single-family.
- Line up financing and inspection teams to move fast in a tight market.
- Identify multiple realistic properties within the 45-day window.
Common pitfalls to avoid
- Skipping a QI and taking constructive receipt of proceeds.
- Missing the 45-day identification or 180-day closing deadlines.
- Ignoring Maryland nonresident withholding and failing to secure MW506E in time.
- Receiving cash boot or reducing debt without adding cash to offset it.
- Not coordinating early with your title company, QI, and agent.
Ready to move your exchange into Severna Park?
If you want an investment foothold in Severna Park, planning is everything. With the right team, tight timelines, and local permitting in mind, you can protect your deferral and land a property that fits your long-term plan. When you are ready to scout options, line up backups, and coordinate with your QI and title company, reach out to The PCS Home Team. We will help you navigate the market and keep your exchange on track.
FAQs
Can I use a 1031 for a single-family in Severna Park?
- Yes, if you hold it for investment or business use and can document that intent. See IRS guidance in the Form 8824 instructions.
How do Maryland nonresident rules affect my exchange?
- Maryland may require withholding at closing unless you obtain an exemption certificate. File MW506AE at least 21 days before settlement and coordinate with your QI and title company. Review COMAR details on exemptions.
What county taxes should I expect when buying in Severna Park?
- Anne Arundel County charges transfer tax of 1.0 percent under 1,000,000 dollars and 1.5 percent at 1,000,000 dollars or more, plus recordation taxes. See the county’s tax guidance.
Do Critical Area rules affect waterfront investments?
- Yes. Shoreline buffers, permits, and mitigation can add time and cost. Review the county’s Critical Area program early in your search.
What commonly derails a 1031 into Severna Park?
- Constructive receipt of proceeds, missed IRS deadlines, Maryland withholding issues, boot or debt mismatches, and poor coordination with the title company. See IRS reporting in the Form 8824 instructions.
