1031 Exchange & DST Investing in North Dakota
North Dakota conforms to the federal 1031 exchange and has one of the nation's lowest top income tax rates, 2.5%, with a partial capital-gains exclusion on top, so state tax is modest but a swap still defers substantial federal gain. Fargo and the Bakken energy region drive activity, and DST replacement interests are available nationwide.
State tax treatment of a 1031 exchange
North Dakota conforms to IRC Section 1031, so a federal like-kind exchange of real property also defers North Dakota income tax on the gain. The state's top marginal rate is 2.5%, among the lowest in the country, and North Dakota also allows a partial exclusion of net long-term capital gains, so the effective state tax on gains is very low even before an exchange.
North Dakota does not impose nonresident real estate withholding at closing and has no clawback or continued-reporting rule for out-of-state exchanges. Because the state tax is small, the primary benefit of a 1031 exchange for many North Dakota sellers is deferring the larger federal capital-gains tax and depreciation recapture.
Market snapshot
Fargo is the state's largest and fastest-growing market, with expanding multifamily, industrial, and healthcare sectors, while Bismarck adds government and regional-services stability. The western Bakken region, centered on Williston and Dickinson, is driven by oil and gas activity, generating energy-linked commercial and workforce-housing demand.
Fargo's steady growth and the energy sector's periodic booms draw replacement capital, though the state's smaller scale means many local investors look out of state for institutional-quality replacement property.
Why 1031 & DST investors look here
- 1031 defers the large federal gain even where North Dakota's state tax is minimal.
- Fargo growth and Bakken energy activity generate commercial exchange demand.
- Out-of-state DSTs give North Dakota investors access to institutional-quality assets.
Replacement-property options
North Dakota exchangers can identify like-kind replacement real estate anywhere in the United States, which is especially useful given the state's smaller inventory of institutional product. A Fargo or Bakken-area property can be exchanged into professionally managed Delaware Statutory Trust interests spanning industrial, multifamily, and net-lease assets nationwide. A later 721 UPREIT exchange can convert DST interests into REIT operating-partnership units, and Opportunity Zone funds offer a separate deferral option for suitable investors.
Frequently asked questions
Does North Dakota tax a 1031 exchange?
No. North Dakota conforms to IRC Section 1031, so a valid like-kind exchange defers state income tax on the gain, though the state tax is already low given the 2.5% top rate and partial gains exclusion.
Can I exchange North Dakota property for out-of-state DSTs?
Yes. Like-kind real property may be located in any state, so a North Dakota property can be exchanged into DSTs holding assets elsewhere while retaining 1031 deferral.
Why exchange if North Dakota's tax is so low?
A 1031 exchange defers the federal capital-gains tax and depreciation recapture, which are typically far larger than the modest North Dakota state tax on the same gain.
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.