1031 Exchange & DST Investing in North Carolina
North Carolina conforms to federal Section 1031, so a valid exchange defers its 4.25% flat state income tax on real property gains. The Charlotte and Research Triangle growth engines make the state a magnet for 1031 replacement capital.
State tax treatment of a 1031 exchange
North Carolina conforms to the federal like-kind exchange rules under Section 1031, so gain deferred federally on investment or business real property is deferred for North Carolina income tax as well, with carryover basis into the replacement property. The state uses a flat individual income tax, set at 4.25% for 2025 as part of a continuing rate reduction schedule.
North Carolina provides no separate preferential capital gains rate, so the flat rate is the effective state rate on any gain ultimately recognized. A properly structured 1031 exchange defers that state tax along with the federal tax until a future taxable sale.
Market snapshot
North Carolina's investment markets are led by Charlotte, the Research Triangle (Raleigh, Durham, Chapel Hill), and the Piedmont Triad, along with growing coastal and mountain markets. Charlotte's banking and finance sector and the Triangle's technology, life sciences, and university base have produced some of the strongest job and population growth in the country.
Multifamily, industrial, life-science and office, and single-family rental assets lead investor demand. Sustained in-migration, corporate relocations, and a diverse economy make North Carolina one of the most sought-after Southeastern markets for 1031 replacement capital.
Why 1031 & DST investors look here
- North Carolina conforms to Section 1031, deferring its 4.25% flat state tax on qualifying exchanges.
- Charlotte and the Research Triangle drive nation-leading job and population growth.
- No state nonresident real estate withholding streamlines closings for out-of-state sellers.
Replacement-property options
North Carolina investors can exchange into Delaware Statutory Trust (DST) interests for passive, institutional-quality real estate, pursue a 721 UPREIT contribution, or invest gains in Qualified Opportunity Zone funds. Replacement property need not be located in North Carolina; a DST may hold assets in multiple states, so investors can diversify while satisfying the like-kind requirement.
Frequently asked questions
Does North Carolina tax a 1031 exchange?
Not at the time of a valid exchange. North Carolina conforms to federal Section 1031, so gain deferred federally is deferred for its flat income tax until a future taxable sale.
Can I exchange North Carolina property for out-of-state DSTs?
Yes. Replacement property does not have to be in North Carolina, and DST interests holding real estate in other states can qualify as like-kind replacement property.
Does North Carolina withhold tax when a nonresident sells real estate?
North Carolina does not impose a dedicated nonresident real estate withholding at closing, though nonresident sellers still report North Carolina-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.