1031 Exchange & DST Investing in West Virginia
West Virginia conforms to federal Section 1031, so a valid exchange defers its 5.12% top state income tax on real property gains. Note the state's 2.5% nonresident real estate withholding at closing.
State tax treatment of a 1031 exchange
West Virginia conforms to the federal like-kind exchange rules under Section 1031, so gain deferred federally on investment or business real property is deferred for West Virginia income tax as well, with carryover basis into the replacement property. West Virginia's top marginal individual income tax rate is 5.12% for 2025 following recent rate reductions, and it applies to capital gains since the state has no preferential capital gains rate.
West Virginia requires withholding on real property sales by nonresidents, generally 2.5% of the total payment (or a percentage of the gain). A properly structured 1031 exchange can qualify for an exemption from this withholding, but the exemption must be documented at closing on the state's required form.
Market snapshot
West Virginia's investment markets are smaller and centered on the Charleston and Huntington metros, the Morgantown university market, and the Eastern Panhandle counties within commuting distance of the Washington, D.C. area. The Eastern Panhandle has seen the strongest growth, drawing residents and investors priced out of Northern Virginia and Maryland.
Multifamily, single-family rental, and select industrial and energy-related assets lead investor interest. Affordable pricing, energy-sector activity, and Eastern Panhandle spillover growth draw value-oriented 1031 replacement capital.
Why 1031 & DST investors look here
- West Virginia conforms to Section 1031, deferring its 5.12% top state tax on qualifying exchanges.
- The Eastern Panhandle benefits from spillover growth from the Washington, D.C. metro.
- A valid exchange can exempt sellers from the state's 2.5% nonresident withholding when properly documented.
Replacement-property options
West Virginia investors can exchange into Delaware Statutory Trust (DST) interests for passive real estate ownership, use a 721 exchange into an UPREIT, or invest gains in Qualified Opportunity Zone funds. Replacement property need not be located in West Virginia; a DST can hold assets across multiple states, allowing investors to diversify while satisfying the like-kind requirement.
Frequently asked questions
Does West Virginia tax a 1031 exchange?
Not at the time of a valid exchange. West Virginia conforms to federal Section 1031, so gain deferred federally is deferred for its income tax until a future taxable sale.
Can I exchange West Virginia property for out-of-state DSTs?
Yes. Replacement property does not have to be in West Virginia, and DST interests holding real estate in other states can qualify as like-kind.
How does West Virginia's 2.5% nonresident withholding affect my exchange?
West Virginia generally withholds 2.5% on nonresident real estate sales, but a properly documented 1031 exchange can qualify for an exemption if the required form is filed at closing.
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.