1031 Exchange & DST Investing in Arkansas
Arkansas conforms to federal Section 1031 and offers a partial capital gains exclusion, so an exchange defers state tax on qualifying real property gains. Northwest Arkansas growth around Bentonville and Fayetteville continues to attract 1031 replacement capital.
State tax treatment of a 1031 exchange
Arkansas conforms to the federal like-kind exchange rules under Section 1031 for real property held for investment or business use, so gain deferred at the federal level is generally deferred for Arkansas income tax as well. Arkansas also allows a partial exclusion of net capital gains, which can further reduce the state tax on any gain ultimately recognized.
Arkansas's top marginal individual income tax rate is 3.9% following recent rate reductions. Because a valid 1031 exchange postpones recognition of the gain, it also postpones the associated state tax until a future taxable disposition of the replacement property.
Market snapshot
Arkansas real estate activity centers on Northwest Arkansas, one of the fastest-growing regions in the country, anchored by Bentonville, Fayetteville, Rogers, and Springdale, along with the Little Rock metro. The presence of major corporate headquarters and a strong university have fueled sustained population and job growth.
Multifamily, industrial, medical office, and single-family rental assets dominate investor demand. Robust in-migration, corporate expansion, and comparatively affordable pricing draw 1031 replacement capital seeking growth markets outside the higher-cost coasts.
Why 1031 & DST investors look here
- Arkansas conforms to Section 1031 and offers a partial capital gains exclusion, reducing state tax exposure.
- Northwest Arkansas is among the fastest-growing regions in the nation, supporting durable rental demand.
- A top rate of 3.9% and no nonresident real estate withholding make closings straightforward.
Replacement-property options
Arkansas investors can exchange into Delaware Statutory Trust (DST) interests for passive, professionally managed real estate, pursue a 721 UPREIT contribution for eventual REIT diversification, or direct gains into Qualified Opportunity Zone funds. The replacement property need not be located in Arkansas, so investors can use a DST to diversify across geographies and property types while satisfying the like-kind requirement.
Frequently asked questions
Does Arkansas tax a 1031 exchange?
Not at the time of a valid exchange. Arkansas conforms to federal Section 1031, so gain deferred federally is deferred for state tax until a future taxable sale, and a partial capital gains exclusion may apply to gain later recognized.
Can I exchange Arkansas property for out-of-state DSTs?
Yes. Replacement property does not have to be in Arkansas, and DST interests holding real estate in other states can qualify as like-kind.
Does Arkansas withhold tax when a nonresident sells real estate?
Arkansas does not impose a dedicated nonresident real estate withholding at closing, though nonresidents still report Arkansas-source gain on a state return.
Gerald F. “Jerry” Baker, III — Founder & Managing Principal, Baker 1031 Investments · FINRA Series 22 / 63 · SIE. Read full bio →
State tax treatment is general and changes frequently; this page is educational and is not tax, legal, or investment advice. Confirm current state and local rules with your own CPA and attorney. Securities offered through Aurora Securities, member FINRA/SIPC. Real estate investments involve risk, including possible loss of principal.