Minnesota is one of the tougher states to sell appreciated property in. It taxes capital gains as ordinary income (up to 9.85%), and for a top-bracket seller that stacks on top of the federal bill, so a large gain can lose roughly a third of itself to tax. A 1031 exchange into a Delaware Statutory Trust lets Minnesota investors defer that combined bill and trade active landlording for passive, professionally managed real estate.
The Minnesota 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 |
| Minnesota income tax (9.85%) | $147,750 |
| Total if you simply sell | $504,750 |
| Tax if you 1031 into a DST | $0 deferred* |
Sell outright in Minnesota's top bracket and roughly 33.6% of your gain goes to tax. A qualifying exchange defers that to $0 today. Run your Minnesota numbers →
*If the exchange qualifies under IRC §1031. Deferral is not forgiveness; tax remains due on a later taxable sale.
Minnesota 1031 rules
Rules summarized as of 2026 — verify with your tax advisor.
Conforms to federal §1031
Minnesota conforms to IRC §1031, so a qualifying exchange defers Minnesota tax as well as federal tax.
Withholding at sale
Minnesota 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 9.85%.
Minnesota market snapshot
Illustrative — wire to a market-data feed; refreshed quarterly.
Baker 1031 in Minnesota
Realized (acquired, held, sold) programs on Minnesota assets. Joined from full-cycle-deals.csv; sponsor-reported, net-to-investor, not independently verified; past performance is not indicative of future results; for accredited investors only.
| Program | Sponsor | Avg annual | Equity × | Hold |
|---|---|---|---|---|
| Rio Bravo — St. Paul | AEI | 5.49% | 1.67x | 9.81 yr |
| Timber Lodge — Rochester | AEI | 6.83% | 1.21x | 10.06 yr |
| Timber Lodge — St. Cloud | AEI | 5.78% | 1.21x | 13.58 yr |
| Walgreens — Alexandria | Syndicated Equities | 7.48% | 1.44x | 5.05 yr |
| Abbott Labs Bio-Medical Portfolio — Minnetonka | Syndicated Equities | 18.40% | 2.35x | 5.06 yr |
See every Minnesota deal in the Data Center →
Current offerings for Minnesota investors
DST sponsors based in Minnesota
Key risks to weigh
DST and Regulation D real estate offerings carry meaningful risks. They are illiquid, with no public trading market and no assurance a secondary market will develop; you may be unable to sell when you wish. You can lose some or all of your invested principal. Many programs use leverage, which magnifies losses as well as gains. Returns depend on the performance of individual tenants, properties, and sponsors, and portfolios may be concentrated in a limited number of assets. Hold periods are indefinite and outside investor control. Distributions are not guaranteed and may be reduced or suspended. These are only summary risks; review the complete risk factors in the offering's Private Placement Memorandum before investing, and consult your own tax, legal, and financial advisors.
Learn more
Minnesota FAQ
What is the capital gains tax rate in Minnesota?
Minnesota taxes capital gains as ordinary income, up to 9.85%, with no separate long-term rate. Combined with the federal 20% rate and the 3.8% net investment income tax, a high-bracket Minnesota seller can face roughly ~33.6% on a real estate gain.
Does Minnesota recognize 1031 exchanges?
Yes. Minnesota conforms to IRC §1031, so a properly structured exchange defers Minnesota tax as well as federal tax.
Why use a 1031 exchange in Minnesota?
Most Minnesota owners we work with are trying to solve one of two problems: a large gain they don't want to hand a third of to the IRS and state, or a rental they're tired of managing. An exchange into a DST addresses both at once, keeping equity invested and moving it into professionally managed property. These are Regulation D offerings available only to 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. Any offer is made only by means of the Confidential Private Placement Memorandum, which contains complete information including all risk factors; this webpage is qualified in its entirety by the PPM. DST interests are illiquid, have no public market, and involve the risk of loss of principal. 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.