Massachusetts taxes capital gains as ordinary income — up to 9% — stacked on top of federal tax, so selling appreciated real estate can cost roughly ~32.8% of the gain. A 1031 exchange into a Delaware Statutory Trust lets Massachusetts investors defer that combined bill and trade active landlording for passive institutional real estate.
The Massachusetts tax math
Here's the tax stack on a long-held rental sold for a $1.5M gain (excludes depreciation recapture, taxed separately at up to 25%):
| On a $1.5M gain | Tax |
|---|---|
| Federal long-term capital gains (20%) | $300,000 |
| Net investment income tax (3.8%) | $57,000 |
| Massachusetts income tax (9%) | $135,000 |
| Total if you simply sell | $492,000 |
| Tax if you 1031 into a DST | $0 deferred |
In Massachusetts's top bracket, roughly the combined rate above goes to tax if you sell outright — versus $0 now with a qualifying 1031 exchange. Run your Massachusetts numbers →
Massachusetts 1031 rules
Rules summarized as of 2026 — verify with your tax advisor.
Conforms to federal §1031
Massachusetts conforms to IRC §1031, so a qualifying exchange defers Massachusetts tax as well as federal tax. Massachusetts applies a 4% 'millionaire' surtax above ~$1M, lifting the top rate to 9%.
Withholding at sale
Massachusetts may require nonresident withholding at closing; a qualifying 1031 exchange generally defers it. Confirm specifics with your closing agent.
How gains are taxed
Taxed as ordinary income — up to 9%. Massachusetts applies a 4% 'millionaire' surtax above ~$1M, lifting the top rate to 9%.
Massachusetts market snapshot
Illustrative — wire to a market-data feed; refreshed quarterly.
Baker 1031 in Massachusetts
Realized (acquired, held, sold) programs on Massachusetts assets. Joined from full-cycle-deals.csv; sponsor-reported, net-to-investor, not independently verified; past performance ≠ future results.
| Program | Sponsor | Avg annual | Equity × | Hold |
|---|---|---|---|---|
| Canton Equities Group LP — Canton | Time Equities | 17.57% | 4.07x | 10.28 yr |
| KinderCare / Children's World — West Bridgewater | AEI | 7.08% | 1.83x | 14 yr |
| Quinn35 — Shrewsbury | Bluerock | 9.70% | 1.49x | 5.25 yr |
| Westerly — Franklin | Bluerock | 7.20% | 1.38x | 5.5 yr |
See every Massachusetts deal in the Data Center →
Current offerings for Massachusetts investors
Learn more
Massachusetts FAQ
What is the capital gains tax rate in Massachusetts?
Massachusetts taxes capital gains as ordinary income, up to 9%, with no separate long-term rate. Combined with the federal 20% rate and the 3.8% net investment income tax, a high-bracket Massachusetts seller can face roughly ~32.8% on a real estate gain. Massachusetts applies a 4% 'millionaire' surtax above ~$1M, lifting the top rate to 9%.
Does Massachusetts recognize 1031 exchanges?
Yes. Massachusetts conforms to IRC §1031, so a properly structured exchange defers Massachusetts tax as well as federal tax.
Why use a 1031 exchange in Massachusetts?
To defer the tax on a large gain (up to about ~32.8% combined) and move from active landlording into passive, professionally managed real estate while keeping your full equity invested. These are Regulation D offerings for accredited investors.
Disclosures
This page is educational and is not investment, tax, or legal advice, or an offer to sell or a solicitation to buy any security. State tax and 1031 rules summarized here are general, current as of 2026, and not tax advice — verify with your CPA and attorney. For accredited investors only. Representatives may transact business only in states where registered or exempt. Securities offered through Aurora Securities, Inc., member FINRA/SIPC; Baker 1031 Investments, LLC is independent of Aurora. Performance shown is sponsor-reported, realized programs only, net of fees, not independently verified, and not indicative of future results.