1031 Exchange & DST Investing in Indiana
Indiana pairs one of the nation's lowest flat income tax rates, 3.0% for 2025, with full conformity to the federal 1031 exchange. Indianapolis's role as a logistics crossroads makes industrial and multifamily the dominant exchange assets, and DST interests are available across the country.
State tax treatment of a 1031 exchange
Indiana conforms to the Internal Revenue Code, including Section 1031, so a federal like-kind exchange of real property also defers Indiana income tax. Capital gains are taxed as ordinary income at the state's flat individual rate, which stepped down to 3.0% for tax year 2025 and is scheduled to continue declining under enacted law.
Indiana does not require nonresident real estate withholding at closing and has no clawback or ongoing-reporting rule that recaptures deferred gain from an out-of-state exchange. The deferred gain remains embedded in the replacement property's basis.
Market snapshot
Indianapolis, marketed as the Crossroads of America, is a national distribution and logistics hub with heavy industrial and warehouse development, alongside a growing multifamily sector. Fort Wayne, the Indianapolis suburbs, and college markets such as Bloomington and West Lafayette add depth in workforce housing and commercial space.
Low operating costs, a landlord-friendly legal environment, and steady population and job growth around Indianapolis draw replacement capital, especially from investors seeking cash-flowing industrial and apartment product at attractive basis.
Why 1031 & DST investors look here
- Full 1031 conformity defers Indiana's low 3.0% flat tax with the federal gain.
- Indianapolis logistics corridor generates significant industrial and warehouse exchange volume.
- Passive DST ownership lets Indiana investors exit hands-on management while staying invested in real estate.
Replacement-property options
Indiana exchangers can identify replacement real estate anywhere in the United States, since like-kind property is not restricted to the state where the relinquished asset sits. That makes Delaware Statutory Trusts a practical option: an Indiana investor can exchange a warehouse or apartment building into fractional, passively managed DST interests spanning industrial, multifamily, or net-lease assets nationwide. A subsequent 721 UPREIT exchange can roll DST interests into REIT operating units, and Qualified Opportunity Zone funds offer an alternative deferral route.
Frequently asked questions
Does Indiana tax a 1031 exchange?
No. Indiana conforms to IRC Section 1031, so a valid like-kind exchange defers Indiana income tax on the gain until a later taxable disposition of the replacement property.
Can I exchange Indiana property for out-of-state DSTs?
Yes. Because like-kind real property can be anywhere in the country, an Indiana property can be exchanged into DSTs holding assets in other states while retaining 1031 deferral.
What is Indiana's capital gains tax rate?
Indiana taxes capital gains as ordinary income at its flat individual rate, which is 3.0% for tax year 2025 and scheduled to decline in future years under current law.
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.