1031 Exchange Rules by State: Capital Gains Tax and Withholding

Key takeaways

• The federal 1031 exchange works the same in every state. What changes is how much state tax you defer, whether money is held back at closing, and which state forms follow you afterward.
• Eight states have no tax on individuals' capital gains: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas and Wyoming. Washington has a capital gains tax, but real estate is exempt from it. Missouri also now lets individuals subtract their capital gains, though it has an income tax.
• I confirmed 15 states that hold back money at closing, or require an estimated payment, when a nonresident sells. The rates and the base differ by state: for example, 2% of the price in Colorado, 7.25% of the amount realized in Hawaii and 8.75% for individuals in Maryland. Each state has its own exemption form or process.
• California is the clearest "clawback" state. If you exchange California property for property elsewhere, you file Form FTB 3840 for the year of the exchange and every year after, until the deferred California gain is taxed.
• A cell in the table that says "Check with the state" means I couldn't confirm that answer from the state's own revenue agency or statute. Ask your CPA or closing agent before you rely on it.
• In my offering records as of October 2026, DST property locations span 33 states. A replacement property in another state can bring that state's filing rules with it.

What are state 1031 exchange rules?

A 1031 exchange is a federal tax rule. It lets you sell investment or business real estate and buy other investment or business real estate without paying tax on your gain right away. The tax is deferred, not forgiven. Section 1031 of the Internal Revenue Code sets the rules.

Here's the federal frame in one paragraph. You must identify replacement property in writing within 45 days of the sale. You must close within 180 days or your tax return due date (with extensions) for the year of the sale, whichever comes first. A qualified intermediary, or QI, holds your sale money so you never touch it. And Section 1031(h) says U.S. real property and foreign real property are not like-kind to each other. I walk through every federal rule in my guide to 1031 exchange rules and deadlines, so I won't repeat them here.

States add a second layer. That layer has three parts:

1. The state income tax you're deferring. If your state doesn't tax capital gains, the exchange only defers federal tax. If it does, the exchange defers both.
2. Withholding at closing. Some states make the buyer or closing agent hold back part of the price when a nonresident sells. The money goes to the state as a prepayment of the seller's tax.
3. Forms that follow you. Some states want to hear from you after the exchange. California is the main example.

The word nonresident means someone who doesn't live in the state. If you live in Arizona and sell a rental in Oregon, you're an Oregon nonresident for that sale.

The word withholding means money taken out of a payment and sent to the government before you get the rest. It isn't an extra tax. It's a down payment on tax you may owe. If you owe less, you claim the difference back on your state return.

Capital gains tax by state: who taxes the gain?

A capital gain is your profit when you sell an asset. For real estate, it's roughly the sale price minus your adjusted basis. Your adjusted basis is what you paid, plus improvements, minus the depreciation you've taken.

Most states with an income tax treat a capital gain like any other income. A few give capital gains special treatment. Here are the patterns, all drawn from the states' own publications.

States with no tax on individuals' capital gains

Eight states don't tax an individual's capital gains, because they have no tax on that income at all. (Missouri, covered below, has an income tax but now lets individuals subtract capital gains.)

• Alaska. The state assessor's office says, "There is no personal state income tax."
• Florida. The Department of Revenue says, "Florida does not impose a personal income tax."
• Nevada. The Department of Taxation says, "The State of Nevada does not impose a state income tax on individuals."
• New Hampshire. Its Interest and Dividends Tax was "repealed for taxable periods beginning after December 31, 2024." The department also says the state doesn't tax W-2 wages.
• South Dakota. The Department of Revenue says South Dakota does not impose a state income tax.
• Tennessee. The Hall income tax, which reached some investment income, "is fully repealed beginning January 1, 2021."
• Texas. The Comptroller says, "Texas has no state income tax."
• Wyoming. The state says it "does not possess an individual or corporate income tax."

Washington: a capital gains tax that skips real estate

Washington has a tax on long-term capital gains, but the Department of Revenue lists "Real estate" among the assets whose sale is exempt. Beginning with tax year 2025, the tax is 7% on gains up to $1 million and 9.9% on the part above $1 million.

Washington also passed a new 9.9% tax on income above a $1,000,000 standard deduction. Under the 2026 session law, it begins January 1, 2028. The law removes federal long-term capital gains from the base and adds back only gains subject to the capital gains excise tax. Real estate that's exempt from that tax stays out.

States with special capital gains breaks

Several states tax gains but give a deduction or lower rate:

• Arizona lets you subtract 25% of qualifying net long-term capital gain on assets bought after December 31, 2011, per the 2025 Form 140NR instructions.
• Missouri lets individuals subtract 100% of federally reported capital gains, including real estate gains. Its news release says this is effective January 1, 2025, but its FAQ says it's first claimed on the 2026 return, so confirm the first year with your CPA.
• Montana taxes net long-term capital gains at 3.0% and 4.1%, separate from its ordinary rates.
• New Mexico allows a deduction of the greater of 100% of net capital gains up to $2,500, or 40% of up to $1,000,000 of gain from selling a business.
• North Dakota has a net long-term capital gain exclusion on Form ND-1.
• Oklahoma has a capital gain deduction for Oklahoma real property "owned for at least five uninterrupted years," per Form 561.
• South Carolina reduces net capital gains by 44% for state tax, per its 2025 SC1040 instructions.
• Vermont lets you exclude up to 40% of adjusted net capital gain on assets held more than three years, capped at $350,000, or take a $5,000 flat exclusion. Only certain categories of gain qualify.
• Wisconsin allows "a deduction for 30% of the net capital gain from assets held more than one year," per Publication 103.

Surtaxes on large gains

A few states add an extra tax on big incomes or big gains. These matter most in the year a large sale fails as an exchange.

• California adds a 1% Behavioral Health Services Tax on taxable income over $1,000,000.
• Maine adds a 2% surcharge on Maine taxable income above $1,000,000 for single filers and $1,500,000 for joint filers in 2026.
• Maryland added a 2% tax on net capital gains for people with federal adjusted gross income over $350,000, starting in 2025.
• Massachusetts adds a 4% surtax on income over $1,107,750 for tax year 2026.

1031 exchange rules by state: the 50-state table

Here is the table for all 50 states and the District of Columbia. I verified each filled-in cell from that state's revenue agency or statute. When I couldn't confirm a cell from a primary source, it says "Check with the state."

Read the columns this way:

• Taxes capital gains? Whether the state taxes an individual's capital gain from selling real estate.
• Top rate (tax year). The highest individual rate the state published, with the year it applies to. It's the top bracket, not what most sellers pay.
• Nonresident withholding at sale? Whether the state requires money held back at closing when a nonresident sells real property, and the basic rate.
• Notable rule for exchangers. One state-specific rule worth knowing.

Three cautions about the table. First, a top rate is the rate on the last dollar of income, not on all of it. Second, several states change rates every year, and some passed changes after the forms I used were printed. Third, local taxes such as city income taxes aren't in the table unless noted.

How do you read the "Check with the state" cells?

"Check with the state" doesn't mean the answer is no. It means I couldn't confirm the answer from the state's own revenue agency or statute when I wrote this. Some states don't publish a plain statement that something doesn't exist. Others publish rules that are hard to apply without the facts of your sale.

Here's who to ask, in order:

1. Your closing agent. That's your escrow officer, title officer or closing attorney. They handle state closing forms. Ask, "Does this state require withholding or an estimated payment when a nonresident sells?"
2. Your QI. A good QI knows the states where it handles exchanges. Ask whether the state has a form the QI must sign or file.
3. Your CPA. Your CPA decides how the state taxes your gain, now and later. Ask before you list the property.
4. The state revenue agency. The agency's own forms and instructions are the final word.

Which states withhold tax when a nonresident sells?

These are the states where I confirmed a withholding or estimated-payment rule from the state's own publications or statute. Each works a little differently.

California

The 2026 Form 593 instructions set the general rate at 3 1/3% of the selling price. A seller can instead elect withholding based on gain, at 12.3% for individuals. Sales of $100,000 or less are exempt.

For a deferred 1031 exchange, the instructions say "the sale is exempt from withholding at the time of the initial transfer." Two exceptions matter. If you receive boot over $1,500, "the QI must withhold." If the exchange fails, the intermediary "must withhold 3 1/3% (.0333) of the sales price." Boot is cash or other non-like-kind value you receive in an exchange. I cover it in my guide to boot in a partial exchange.

Colorado

Colorado's Form DR 1083 instructions say "The required withholding is the lesser of" 2% of the sales price or the net proceeds. It applies to nonresident individuals, estates and trusts, and to some out-of-state corporations. No withholding is required when the sales price is $100,000 or less.

Alabama

Alabama's withholding rule comes from Section 40-18-86 of the Alabama Code. The Department of Revenue's FAQ on the amount withheld says the buyer generally withholds "3 or 4 percent of the purchase price," or that rate on the gain if the seller gives Form NR-AF2.

The department's nonresident withholding FAQs say transfers where gain is completely unrecognized, "such as a like kind exchange, are not subject to the withholding provisions." In a partial exchange, withholding applies "only to the extent of the recognized gain."

Georgia

Georgia's Form G2-RP says the amount withheld "shall be 3% of the total sales price." With a seller's affidavit, it's 3% of the gain instead. The form doesn't mention a 1031 exemption, so plan the paperwork with your closing attorney.

Hawaii

Hawaii's withholding is called HARPTA, the Hawaii Real Property Tax Act. A 2025 Tax Facts says, "The buyer is required to withhold 7.25% of the amount realized on the disposition of Hawaii real property."

An exchange can be exempt using Form N-289. But "If any amount of gain is recognized in an IRC section 1031 exchange," Form N-289 can't be used, and the buyer withholds the full 7.25%. The HARPTA forms page also lists Form N-288B, an application for a withholding certificate.

Maine

Maine's real estate withholding FAQ says buyers must withhold "2.5% from the total consideration" when a nonresident sells Maine real property for $100,000 or more. It also says, "Maine REW is required, even in a like-kind exchange." The seller can ask for an exemption on Form REW-5, filed on time with a copy of the exchange contract.

Maryland

Maryland's comptroller says that for tax years beginning after December 31, 2024, the withholding rates are 8.75% for nonresident individuals and 8.25% for nonresident entities. That's in its tax alert on 2025 rate changes. Maryland's Technical Bulletin 58 adds a helpful point. When gain isn't included in federal AGI, "it is not included in Maryland adjusted gross income."

New Jersey

New Jersey requires a nonresident seller's estimated payment when the deed is recorded. The Division of Taxation's GIT/REP FAQs say the gain is multiplied by the top rate, 10.75%. They also say "2% is the minimum withholding and it does not represent a cap or ceiling." A nonresident whose gain isn't recognized under Section 1031 can claim an exemption on Form GIT/REP-3. If the exchange turns out to be only partly deferred, the FAQs say you may make an estimated payment on Form NJ-1040-ES after recording.

New York

Nonresident sellers in New York make an estimated tax payment on Form IT-2663 when the deed is recorded. The IT-2663 instructions give an example where "no gain or loss is recognized under IRC § 1031." In that case you mark box 4B and say the transfer is a like-kind exchange.

Oregon

Oregon's Form OR-18-WC instructions set withholding at the lowest of three numbers: "Four percent of the consideration (sales price)," "Eight percent of the gain that is includable in Oregon taxable income," and "The net proceeds disbursed to the transferor." In one of the department's examples, money forwarded to a QI wasn't counted as net proceeds. Only the cash paid out to the seller was.

Rhode Island

Rhode Island law sets withholding at "six percent (6%) of the total payment to nonresident individuals, estates, partnerships, or trusts" and 7% for nonresident corporations. The state's instructions for nonresident sales list a like-kind exchange as a special transaction. They say "The name, address and phone number of the intermediary are required."

South Carolina

South Carolina's Revenue Ruling 09-13 sets withholding at 7% for nonresident individuals and 5% for corporations. It's figured on the gain if the seller signs an affidavit, or on the amount realized if not. For a delayed (non-simultaneous) exchange, the ruling gives two options. The seller can pay the withholding and claim a refund on Form I-290X if the exchange qualifies. Or the buyer can give the QI the withholding amount, and the QI pays only if the exchange fails.

Vermont

Vermont's real estate withholding page says "the buyer is required to withhold 2.5% of the sale price" when the seller is a nonresident. The page's only exemption path is a Commissioner's Certificate.

West Virginia

West Virginia's TSD 389 sets withholding at "Either 2.5% of the total payment to the nonresident individual or entity or 4.58% of the estimated capital gain." The listed exceptions don't mention like-kind exchanges.

Delaware

Delaware's Form REW-EST is completed at recording. It figures estimated tax at 6.6% of the gain for most sellers and 8.7% for C corporations. The form lists "1031 Exchange" as one of its options.

Which states have a 1031 clawback rule?

A clawback rule lets a state tax gain that was deferred while the property was in that state, even after you've moved the investment somewhere else. The deferred gain doesn't disappear when the property crosses a state line.

California and Oregon both have one. The instructions for Form FTB 3840 apply to taxpayers "who exchange real property located in California for like-kind property located outside of California." The rule applies "regardless of residence status." You file "for the taxable year of the exchange and for each subsequent taxable year," generally until the California-sourced gain is recognized.

If you skip the form and also don't file a return, the instructions say "the FTB may estimate net income and assess tax plus any applicable penalties and interest." My California guide, linked below, walks through the form line by line.

Oregon has a similar yearly form. The Form OR-24 instructions say you file it "for the tax year that you transferred property" and "annually thereafter until the disposition of the like-kind property." Nonresidents attach it to Form OR-40-N. ORS 316.738, titled "Modification of taxable income when deferred gain is recognized as result of out-of-state disposition of property," is the statute that can bring the deferred Oregon gain back into Oregon income. My Oregon guide covers the form in detail.

Other states have their own sourcing rules. Oregon's separate administrative rule OAR 150-316-0171 says a nonresident's gain from "any sale, exchange, or other disposition" of Oregon real property is taxable. I couldn't confirm from primary sources how every state handles deferred gain years later. If you're leaving a state through an exchange, ask your CPA how that state treats the gain when you finally sell.

Do you owe state tax if you sell in one state and buy in another?

Under federal law, U.S. real property is like-kind to other U.S. real property. You can sell a duplex in Ohio and buy a warehouse in Georgia. The state questions are about who taxes what, and when.

Selling in a tax state and buying in a no-tax state

Say you live in Texas and sell a rental in California. California taxes nonresidents on gain from California real estate. If the exchange is fully deferred, there's no gain to tax now. But you still file Form FTB 3840 each year, because your replacement property is outside California.

When you finally sell for cash, California expects its share of the gain that built up while you owned the California property. Moving to a no-tax state doesn't erase that.

Selling in a no-tax state and buying in a tax state

Now flip it. You live in Florida and sell a Florida rental. Florida has no personal income tax, so there's no Florida gain to defer. If you buy a replacement in Georgia, Georgia doesn't tax the old Florida gain. But the Georgia property's rent is Georgia income. That may mean a Georgia nonresident return each year. When you sell the Georgia property, Georgia can withhold at closing under its G2-RP rules.

Your home state still counts

Most states tax their residents on all their income, wherever it's earned. So a resident of a tax state who owns rentals elsewhere may file in both states. A credit for taxes paid to the other state often keeps you from paying twice. Your CPA will sort that out on your return.

How do DSTs change the state picture?

A Delaware Statutory Trust, or DST, is a trust that owns real estate. Investors buy beneficial interests in the trust. In Revenue Ruling 2004-86, the IRS said a taxpayer "may exchange real property for an interest in the Delaware statutory trust" and the exchange can qualify under Section 1031 if the other rules are met. I explain the structure in my DST guide.

A DST interest can qualify as replacement property. But the property inside the DST sits in a real state with real tax rules. If the DST owns an apartment complex in Georgia, its rental income is generally Georgia income. If it owns buildings in several states, you may have filings in several states.

Three practical points:

• Ask where the property is. The offering documents name the location. Ask your CPA what that state requires of a nonresident investor.
• Ask about the sale. When the DST sells, that state's withholding rules may apply at closing.
• Keep the California form going. The FTB 3840 instructions explain how to report a DST interest on the form. If you exchanged out of California into a DST, the annual filing continues.

DSTs carry real risks. They're illiquid, so you generally can't sell your interest early. You have limited control over decisions. Distributions are not guaranteed. You can lose your entire investment. Most DSTs are offered only to accredited investors.

How to check your state's rules before you exchange, step by step

Step 1: Find the state where the property sits

The property's state, not your home state, sets the withholding rules at closing. Write down both states.

Step 2: Look up the row for each state in the table

Note the tax rate, the withholding rule and any notable rule. If a cell says "Check with the state," add it to your question list.

Step 3: Ask your closing agent about withholding forms

Ask which forms the state requires at closing for an exchange. In some states, like Maine, you request an exemption in advance. Waiting until closing week can be too late.

Step 4: Pick a QI who knows the state

Your QI may have to sign or file state forms. California and South Carolina both give the QI a role. My qualified intermediary guide covers what to ask before you hire one.

Step 5: Run the numbers with your CPA

Ask your CPA what you'd owe in state tax if the exchange failed. That number tells you how much the state part of the exchange is worth to you. The 1031 tax deferral calculator can help you rough out the federal side first.

Step 6: Plan for the replacement property's state

If you buy in a new state, ask what that state expects each year and when you sell. That includes nonresident returns on rental income.

Step 7: Calendar any annual filings

If you exchanged California property for property elsewhere, put Form FTB 3840 on your list every year. If you exchanged Oregon property for property outside Oregon, do the same with Form OR-24. Keep copies of your exchange records for as long as you own the replacement.

Worked examples with state numbers

These examples are hypothetical. The numbers are simple on purpose. They aren't typical of any offering or any real sale. Your result will depend on your full tax picture.

Example 1: The same gain in three states

Say three investors each sell a rental with a $600,000 gain and don't do an exchange. To keep the math simple, I'll apply each state's top rate to the whole gain. That's an upper-bound estimate, because lower brackets would apply to some income.

The California figure is a ceiling. The 1% tax applies only to taxable income over $1,000,000, so a seller with no other income would pay less. Still, the gap shows why the state part of an exchange matters far more in some places than others. Federal tax comes on top of every row. For the federal side, including the part of the gain from past depreciation, see my guide to depreciation recapture.

Example 2: A nonresident sells in Oregon

Say you live in Nevada and sell an Oregon rental for $1,000,000. Your gain is $400,000. You don't do an exchange, and you receive $500,000 in net proceeds after paying off the loan.

Oregon withholding is the lowest of three numbers:

• 4% of the price: $40,000
• 8% of the gain: $32,000
• Net proceeds: $500,000

The escrow agent would withhold $32,000. You'd file an Oregon nonresident return and get back anything withheld beyond your actual Oregon tax.

Now say you do an exchange, and the escrow agent sends the proceeds to your QI. In Oregon's own example, money forwarded to a QI wasn't counted as net proceeds. Ask your escrow agent how that applies to your file before closing.

Example 3: A Hawaii exchange with a little boot

Say a nonresident sells Hawaii property for $1,000,000 in a 1031 exchange. The seller plans to take $50,000 of cash out at the end.

Because some gain will be recognized, Hawaii's guidance says the N-289 exemption can't be used. The buyer withholds the full 7.25%: $72,500. That's far more than the tax on $50,000 of boot. The seller can claim back any excess on the Hawaii return.

The lesson: in Hawaii, taking even a small amount of cash can change the closing paperwork. Decide on boot before you sign.

State guides for ten states

I've written separate guides for ten states. Each one goes deeper on that state's forms, deadlines and examples.

• California. The FTB 3840 annual filing, Form 593 withholding and the 13.3% top rate. Read the California 1031 exchange guide.
• Florida. No personal income tax, plus the documentary stamp tax on deeds. Read the Florida 1031 exchange guide.
• Texas. No state income tax, so the exchange defers federal tax only. Read the Texas 1031 exchange guide.
• New York. Form IT-2663 for nonresident sellers and a 10.9% top rate for 2026. Read the New York 1031 exchange guide.
• Washington. Real estate excise tax and a capital gains tax that exempts real estate. Read the Washington 1031 exchange guide.
• Colorado. A 4.4% rate for 2025 and 2% nonresident withholding. Read the Colorado 1031 exchange guide.
• Arizona. A 2.5% flat rate and a 25% subtraction for some long-term gains. Read the Arizona 1031 exchange guide.
• Nevada. No individual income tax, but a real property transfer tax set by state law (NRS Chapter 375) is due when the deed is recorded with the county. Read the Nevada 1031 exchange guide.
• Utah. A flat 4.45% rate for 2026. Read the Utah 1031 exchange guide.
• Oregon. A 9.9% top rate, closing withholding for nonresidents and the yearly Form OR-24. The Oregon guide is linked in the clawback section above.

What about transfer taxes?

A 1031 exchange defers income tax. It doesn't touch transfer taxes, which are charged when a deed is recorded. These are separate from everything in the table above.

Washington shows how large they can be. The Department of Revenue's real estate excise tax page lists state rates for sales from January 1, 2023, through December 31, 2026:

The same page announces new thresholds from January 1, 2027, with the same rates: 1.1% up to $551,000, 1.28% from $551,000.01 to $1,551,000, 2.75% from $1,551,000.01 to $3,051,000, and 3.0% above $3,051,000. The page says local REET is added on top. It lists an exemption labeled "IRS 'tax deferred' exchange," but that label covers a narrow situation, not the whole sale. My Washington guide explains it.

Many states and cities have their own transfer taxes. Budget for them on both the sale and the purchase. Your closing agent can give you the exact figure.

Mistakes to avoid

1. Assuming no withholding because it's an exchange. Maine says its withholding "is required, even in a like-kind exchange." Georgia's Form G2-RP doesn't list a 1031 exemption. Ask early.
2. Waiting until closing week for exemption forms. Some states want the request filed before closing. Late paperwork can mean money held back that you planned to reinvest.
3. Taking small amounts of cash without checking the state rule. In Hawaii, any recognized gain blocks the N-289 exemption. In California, boot over $1,500 triggers QI withholding.
4. Forgetting the California form after you move. FTB 3840 applies regardless of where you live. It runs every year until the California gain is recognized.
5. Ignoring the replacement property's state. Rent from an out-of-state property, including a DST, can mean a new state return each year.
6. Relying on last year's rate. Many states changed rates for 2025 and 2026. Utah, for example, cut its rate to 4.45% for 2026 by a bill passed that year.
7. Treating a top rate as your rate. Graduated states tax lower brackets at lower rates. Ask your CPA for the real number.
8. Missing the federal deadlines while sorting out state forms. The 45-day and 180-day clocks don't stop for state paperwork.

What my data shows

My offering records as of October 2026 cover 76 DST offerings from 38 sponsors. They describe the offerings I track. They aren't a forecast or a promise about any future offering.

The number that matters most for this guide: Locations span 33 states; the most common are Florida (14), Texas (13), North Carolina (8), Georgia (7).

Look at those four states in the table. Florida and Texas have no state income tax. North Carolina's rate is 3.99% for 2026, and Georgia's is 4.99% for 2026. Georgia also withholds 3% when a nonresident sells. So when a DST sells a Georgia property, ask how the sponsor handles that state's closing rules for investors.

That spread means a DST replacement can put your money in a different state than the one you sold in. That's often the point. It also means a new set of state rules to learn.

My offering records as of October 2026 also show the minimum investment: median $100,000; ranges from $25,000 to $500,000; 21 offerings (28%) start at $25,000. Lower minimums can help when a state's withholding or a small amount of leftover cash changes how much you have to place.

You can see what's currently available on my current offerings page. I've worked in real estate acquisitions, management and development, which you can read about on my about page.

Frequently asked questions

Which states don't tax capital gains on real estate?

Eight states don't tax individuals' capital gains: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas and Wyoming. Washington taxes some long-term capital gains, but its Department of Revenue lists real estate as exempt. Missouri also now lets individuals subtract their capital gains, though it has an income tax.

Do I pay state tax if I sell property in one state and buy in another?

Not at the time of a fully deferred exchange, in the states I checked. The state where you sold can still tax its share of the gain when you later sell for cash, and California and Oregon track that gain every year on Forms FTB 3840 and OR-24.

What is a 1031 clawback state?

It's a state that can tax gain deferred while the property was in that state, even after you exchange into property elsewhere. California is the clearest example, and Oregon has a similar yearly Form OR-24.

Do nonresident sellers have to pay tax at closing?

In many states, yes. California, Colorado, Georgia, Hawaii, Maine, Maryland, New Jersey, New York, Oregon, Rhode Island, South Carolina, Vermont, West Virginia, Alabama and Delaware all have a withholding or estimated-payment rule, though some exempt fully deferred exchanges.

Does a 1031 exchange avoid state withholding?

Sometimes: Alabama exempts a fully deferred exchange, New Jersey has an exemption on Form GIT/REP-3, California exempts it at the first transfer, and South Carolina lets a QI pay only if a delayed exchange fails. Maine, though, says its withholding still applies in a like-kind exchange. You usually need to file an exemption form, so ask your closing agent early.

If I move to a state with no income tax after a 1031 exchange, can the state I left still tax the gain?

It can, depending on the state you left, if your replacement property is outside that state. California's FTB 3840 instructions say the annual filing applies regardless of residence, and Oregon's Form OR-24 is filed every year until you dispose of the replacement property. For any other state, ask your CPA how it treats the deferred gain when you finally sell for cash.

Does every state follow the federal 1031 rules?

Many states start from federal adjusted gross income, so a deferred federal gain stays deferred for state tax. Maryland's comptroller says so directly, and Pennsylvania began allowing the deferral for its personal income tax on January 1, 2023.

Can a DST in another state be my replacement property?

Yes, a DST interest can qualify as replacement property under Revenue Ruling 2004-86 if the other rules are met. The property's state may then require nonresident returns on the rental income and may withhold when the DST sells.

Does a 1031 exchange defer transfer taxes?

No. A 1031 exchange defers income tax only, and transfer taxes are charged when the deed is recorded. Washington's state real estate excise tax, for example, runs from 1.10% to 3.00% of the price.

What does "Check with the state" mean in the table?

It means I couldn't confirm that cell from the state's revenue agency or statute. It doesn't mean the answer is no, so ask your closing agent, QI or CPA.

Before you act

This guide is general education, not tax, legal or investment advice. State rules change often, and how they apply depends on your facts. Confirm every state rule with your CPA, your attorney and your qualified intermediary before you sell. A DST interest can qualify as replacement property, but DSTs are illiquid, distributions are not guaranteed, and you can lose your entire investment. Most DSTs are available only to accredited investors. Securities are offered through Aurora Securities, Inc., member FINRA/SIPC.

Sources

• 26 U.S. Code § 1031, Cornell Law School Legal Information Institute
• IRS, Revenue Ruling 2004-86
• Alabama Department of Revenue, How is the amount to be withheld determined?
• Alabama Department of Revenue, Withholding on sales/transfers of real property by nonresidents FAQs
• Alabama Department of Revenue, What is Alabama's individual income tax rate?
• Alaska Division of Community and Regional Affairs, Alaska Tax Facts
• Arizona Department of Revenue, 2025 Form 140NR Booklet
• Arkansas DFA, 2025 AR1000F and AR1000NR Instructions
• California FTB, 2026 Instructions for Form 593
• California FTB, 2025 Instructions for Form FTB 3840
• California FTB, 2025 California Tax Rate Schedules
• California FTB, 2025 Form 540 Booklet
• Colorado Department of Revenue, 2025 Individual Income Tax Booklet
• Colorado Department of Revenue, Form DR 1083 (2025)
• Connecticut DRS, 2025 Form CT-1040 Tax Calculation Schedule
• Delaware Division of Revenue, Personal Income Tax FAQs
• Delaware Division of Revenue, Form REW-EST
• DC Office of Tax and Revenue, DC Individual and Fiduciary Income Tax Rates
• Florida Department of Revenue, Do I have to file a personal income tax return in Florida?
• Georgia Department of Revenue, Important Tax Updates
• Georgia Department of Revenue, Form G2-RP
• Hawaii Department of Taxation, Tax Facts on HARPTA (2025)
• Hawaii Department of Taxation, HARPTA forms
• Hawaii Department of Taxation, 2025 Tax Outline
• Hawaii Department of Taxation, Form N-11
• Idaho State Tax Commission, Individual Income Tax Rate Schedule
• Illinois Department of Revenue, Income tax rates
• Indiana Department of Revenue, Rates, Fees and Penalties
• Iowa Department of Revenue, 2026 Individual Income Tax and Interest Rates
• Kansas Department of Revenue, Notice 24-08
• Kentucky Department of Revenue, 2026 Withholding Tax Formula
• Louisiana Department of Revenue, What are the individual income tax rates and brackets?
• Maine Revenue Services, 2026 Individual Income Tax Rate Schedules
• Maine Revenue Services, Real Estate Withholding FAQ
• Comptroller of Maryland, Tax alert on 2025 legislative rate changes
• Comptroller of Maryland, Technical Bulletin No. 58
• Massachusetts DOR, Massachusetts tax rates
• Michigan Department of Treasury, 2025 Tax Year Income Tax Rate
• Minnesota Department of Revenue, Income tax rates and brackets
• Mississippi Department of Revenue, Withholding tables (Pub 89-700, 2026)
• Missouri Department of Revenue, Capital Gains Subtraction FAQ
• Missouri Department of Revenue, Missouri first state to fully exempt capital gains tax
• Montana Department of Revenue, HB 337: 2026–2027 Individual Income Tax Changes
• Nebraska Department of Revenue, Tax Rate Chronologies
• Nevada Department of Taxation, Income Tax in Nevada
• New Hampshire DRA, Repeal of NH Interest and Dividends Tax Now in Effect
• New Hampshire DRA, Interest and Dividends Tax
• New Jersey Division of Taxation, FAQs on GIT forms for sale of real property
• New Jersey Division of Taxation, Form GIT/REP-3, Seller's Residency Certification/Exemption
• New Mexico Taxation and Revenue, 2025 PIT-ADJ Instructions
• New Mexico Taxation and Revenue, 2025 Tax Rate Table
• New York Tax Law § 601, New York State Senate
• New York State Department of Taxation and Finance, Instructions for Form IT-2663
• North Carolina Department of Revenue, Tax Rate Schedules
• North Dakota Office of State Tax Commissioner, Individual Income Tax History
• North Dakota Office of State Tax Commissioner, 2025 Form ND-1
• Ohio Department of Taxation, Annual Tax Rates
• Oklahoma Tax Commission, Summary of 2025 Tax Legislation
• Oklahoma Tax Commission, Form 561
• Oregon Department of Revenue, 2025 Tax rate charts
• Oregon Department of Revenue, Form OR-18-WC Instructions
• Oregon Department of Revenue, Schedule OR-24 Instructions
• Oregon Revised Statutes, Chapter 316 (ORS 316.738)
• Oregon Secretary of State, OAR 150-316-0171
• Pennsylvania Department of Revenue, Personal Income Tax Rates
• Pennsylvania Department of Revenue, PIT Guide: Net Gains from Sale, Exchange or Disposition of Property
• Rhode Island General Laws § 44-30-71.3
• Rhode Island Division of Taxation, Instructions for Sale of Rhode Island Real Estate by Nonresidents
• Rhode Island Division of Taxation, 2025 Rhode Island Tax Rate Schedule and Tables
• South Carolina DOR, Individual Income Tax
• South Carolina DOR, 2025 SC1040 Instructions
• South Carolina DOR, Revenue Ruling 09-13
• South Dakota Department of Revenue, Taxes
• Tennessee Department of Revenue, HIT-3: Hall Income Tax Repealed Beginning January 1, 2021
• Texas Comptroller, Texas is open for small business
• Utah Legislature, S.B. 60 (2026), Enrolled
• Vermont Department of Taxes, 2025 Vermont Tax Rate Schedules
• Vermont Department of Taxes, Taxable Income
• Vermont Department of Taxes, Real Estate Withholding
• Virginia Tax, 2025 Tax Rate Schedule
• Washington DOR, Capital gains tax
• Washington DOR, New tiered rates for Washington's capital gains tax
• Washington DOR, Real estate excise tax
• Washington State Legislature, ESSB 6346, Chapter 238, Laws of 2026
• West Virginia Tax Division, 2026 Income Tax Rate Cut
• West Virginia Tax Division, TSD 389
• Wisconsin DOR, Tax Rates
• Wisconsin DOR, Publication 103
• State of Wyoming, About Wyoming