Tennessee is one of the few states with no personal income tax, so when you sell appreciated real estate the only capital-gains bill comes from the federal government. At 23.8% of the gain, it is still far from trivial. A 1031 exchange into a Delaware Statutory Trust lets Tennessee investors defer that federal tax, keep their full equity working, and hand off the day-to-day management of the property. No DST is currently based in Tennessee, but Baker sources DST replacement property nationwide for Tennessee investors, so a home-state offering is not required.
The Tennessee 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 |
| Tennessee state tax | $0 |
| Total if you simply sell | $357,000 |
| Tax deferred if the exchange qualifies | $0 deferred |
Deferral is contingent on meeting all §1031/DST requirements and is not a guaranteed outcome; tax is deferred, not eliminated, and becomes due upon a future non-exchanged sale, and DST investments carry risk of loss.
Even with no Tennessee income tax, the federal bill on a large gain is real, and the deferral is time-sensitive: you have 45 days from closing to identify replacement property and 180 days to complete the exchange. Keep in mind that depreciation recapture stacks on top of the rates above. Run your Tennessee numbers →
Tennessee 1031 rules
Rules summarized as of 2026 — verify with your tax advisor.
Conforms to federal §1031
Tennessee levies no personal income tax, so a sale is taxed only federally; a 1031 exchange still defers the federal 20% capital-gains rate plus the 3.8% net investment income tax.
Withholding at sale
None at the state level.
How gains are taxed
No state income tax — capital gains are not taxed at the state level.
Tennessee market snapshot
Illustrative — wire to a market-data feed; refreshed quarterly.
Baker 1031 in Tennessee
Realized (acquired, held, sold) programs on Tennessee assets — showing 8 of 21 realized deals; see the full list in the Data Center. Joined from full-cycle-deals.csv; sponsor-reported, net-to-investor, not independently verified; past performance ≠ future results.
| Program | Sponsor | Avg annual | Equity × | Hold |
|---|---|---|---|---|
| Family Dollar – Memphis, TN — Memphis | Four Springs | 7.12% | 1.03x | 0.4 yr |
| Public Square Garage — Nashville | Syndicated Equities | -9.66% | 0.39x | 9.26 yr |
| Note 16 — Nashville | Bluerock | 44.50% | 1.77x | 1.25 yr |
| Hillsboro — Nashville | Bluerock | 25.10% | 2.19x | 3 yr |
| Creekside Village — Chattanooga | Bluerock | 14.80% | 2.27x | 4 yr |
| Grove at Waterford — Hendersonville | Bluerock | 35.00% | 1.34x | 2.58 yr |
| 23Hundred Berry Hill — Nashville | Bluerock | 43.70% | 1.88x | 2.25 yr |
| Villas at Oak Crest — Chattanooga | Bluerock | 14.00% | 1.33x | 3.42 yr |
See every Tennessee deal in the Data Center →
Current offerings for Tennessee investors
Learn more
Tennessee FAQ
Does Tennessee tax capital gains?
No. Tennessee has no personal income tax, so capital gains from selling real estate are not taxed at the state level. You still owe federal tax — the 20% long-term rate plus the 3.8% net investment income tax, about 23.8% on the gain — which a 1031 exchange can defer.
Does Tennessee recognize 1031 exchanges?
With no Tennessee income tax to conform, federal 1031 treatment governs, and a qualifying exchange defers the federal gain in full.
Why use a 1031 exchange in Tennessee?
To defer the tax on a large gain (the federal bill alone can reach 23.8%) 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.
DST investments are illiquid, involve significant risk including possible loss of principal, are not suitable for all investors, and are offered only by Private Placement Memorandum, which controls in the event of any conflict with this page.