The State of 1031 by State: 2026 Rankings
This is Start1031’s 2026 index of how all 50 states treat a 1031 exchange. It measures two things: the state tax burden an investor faces when exchanging — and eventually recognizing — gain (top income-tax rate on capital gains, transfer or documentary-stamp taxes on the deeds), and the procedural friction at closing and afterward (nonresident withholding requirements, exemption paperwork, and clawback tracking rules). The one-sentence takeaway: federal 1031 deferral works exactly the same in every state — what differs is the state layer stacked on top of it. Every state that taxes income conforms to IRC §1031, so the federal 45-day and 180-day mechanics never change; your score-relevant questions are what the state will tax, what it withholds at the closing table, and whether it follows your deferred gain across state lines.
Much of the state-level commentary still circulating online leans on data collected before 2021. This page is built instead from our 50 individually fact-checked state guides, each citing the state’s Department of Revenue, statutes, and current-year forms — and it will be re-scored annually.
Key findings 2026
- Five states tie for #1 with a perfect 100/100 — Alaska, South Dakota, Tennessee, Texas, and Wyoming: no state income tax on the gain, no nonresident withholding, no state transfer tax, no clawback.
- Eight states levy no personal income tax on capital gains (Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Wyoming) — and Washington effectively joins them, because real estate gains are fully exempt from its 7% capital gains excise tax (RCW 82.87.050).
- Only four states claw back deferred gain when you exchange into out-of-state property: California, Oregon, Montana, and Massachusetts. California and Oregon require annual tracking forms (FTB 3840 and OR-24).
- 18 states impose withholding on nonresident sellers at closing — and all 18 exempt a fully deferred 1031 exchange, almost always via a form filed before or at closing (e.g., Hawaii’s N-289, Georgia’s IT-AFF3, Maryland’s MW506AE, Colorado’s DR 1083).
- Special state capital-gains breaks materially soften mid-pack states: Arkansas exempts 50% of net capital gain, South Carolina deducts 44%, North Dakota excludes 40%, Idaho deducts 60% on qualifying in-state real property, and Missouri’s new HB 594 subtraction can reach 100% of individual capital gains.
- 28 states charge a transfer, deed, or documentary-stamp tax — and none of them are deferred by a 1031 exchange. Delaware’s combined 4% is the steepest statewide rate; Philadelphia (4.578%) and Pittsburgh (5%) add some of the steepest local transfer-tax rates in our dataset on top of Pennsylvania’s state levy.
- California finishes last at 30/100 — a 13.3% top rate, 3.33% withholding, county-plus-city transfer taxes, and the FTB 3840 clawback filing every year until the deferred gain is recognized. Oregon (42) and New York (52) round out the bottom three.
2026 rankings: all 50 states
Scores run 0–100; higher means a lighter state layer on a 1031 exchange. Ties share a rank. Every state links to its full guide with statutes, forms, and primary-source citations.
| Rank | State | Score | Income tax on gains | Nonresident withholding | Transfer tax | Clawback |
|---|---|---|---|---|---|---|
| 1 | Alaska | 100 | None | None | None | No |
| 1 | South Dakota | 100 | None | None | None identified | No |
| 1 | Tennessee | 100 | None | None | None identified | No |
| 1 | Texas | 100 | None | None | None | No |
| 1 | Wyoming | 100 | None | None | None | No |
| 6 | Florida | 99 | None | None | 0.70% doc stamps | No |
| 7 | Arizona | 97 | 2.5% flat | None | None | No |
| 7 | North Dakota | 97 | 2.50% top (40% LTCG exclusion) | None | None | No |
| 9 | Louisiana | 96 | 3% flat | None | None | No |
| 10 | Hawaii | 93 | 7.25% cap on gains | 7.25% HARPTA (1031 exempt) | $0.10–$1.25 per $100 | No |
| 10 | Virginia | 93 | 5.75% top | None identified (Form R-5 registration) | None identified | No |
| 12 | Wisconsin | 91 | 7.65% top (30% LTCG exclusion) | None | 0.3% | No |
| 13 | Indiana | 90 | 2.95% flat | None | None | No |
| 13 | Missouri | 90 | 4.7% top (100% CG subtraction) | None | None | No |
| 13 | Nevada | 90 | None | None | $1.95+ per $500 | No |
| 13 | New Hampshire | 90 | None | None | $0.75 per $100 each side | No |
| 13 | Oklahoma | 90 | 4.5% top | None | $0.75 per $500 | No |
| 13 | West Virginia | 90 | 4.58% top | 2.5% (1031 exempt) | ≥$1.65 per $500 | No |
| 19 | Arkansas | 89 | 3.9% top (50% CG exempt) | None identified | $3.30 per $1,000 | No |
| 20 | Nebraska | 88 | 4.55% top | None | $2.32 per $1,000 | No |
| 20 | Pennsylvania | 88 | 3.07% flat | None | ~2% combined typical | No |
| 22 | Idaho | 87 | 5.3% flat (60% CG deduction) | None | None | No |
| 22 | Kentucky | 87 | 3.5% flat | None | 0.1% | No |
| 24 | Iowa | 86 | 3.8% flat | None | $0.80 per $500 | No |
| 25 | New Mexico | 85 | 5.9% top (limited CG deduction) | None | None | No |
| 25 | North Carolina | 85 | 3.99% flat | None | $2 per $1,000 | No |
| 27 | Utah | 84 | 4.45% flat | None | None identified | No |
| 27 | Washington | 84 | None (real estate exempt from CG excise) | None | REET 1.1%–3.0% + local | No |
| 29 | Illinois | 82 | 4.95% flat | None | $0.50 per $500 + local | No |
| 30 | Michigan | 81 | 4.25% flat | None | 0.75% + county | No |
| 31 | Kansas | 80 | 5.58% top | None | None | No |
| 31 | Ohio | 80 | 2.75% flat (2026) | None | $0.10 per $100 + county | No |
| 33 | Mississippi | 78 | 4.0% flat | 5% over $100K (1031 exempt) | None | No |
| 33 | South Carolina | 78 | 5.21% top (44% CG deduction) | On gain (1031 exempt) | $1.85 per $500 | No |
| 35 | Colorado | 77 | 4.40% flat | 2% (1031 exempt) | None (resort towns 1%–3%) | No |
| 36 | Alabama | 75 | 5% top | 3%–4% (1031 exempt) | None identified | No |
| 36 | Connecticut | 75 | 6.99% top | None | 0.75%–2.25% + local | No |
| 36 | Maryland | 75 | 6.50% + county | 8.75% (1031 exempt) | 0.5% + local | No |
| 39 | Georgia | 73 | 4.99% flat (2026) | 3% (1031 exempt) | ~0.1% | No |
| 40 | Rhode Island | 71 | 5.99% top | 6% (1031 exempt) | None identified | No |
| 41 | Vermont | 67 | 8.75% top | 2.5% (1031 exempt) | None identified | No |
| 42 | Minnesota | 66 | 9.85% top | None | ~0.33% deed tax | No |
| 43 | Delaware | 65 | 6.6% top | 6.6% of gain (1031 exempt) | Up to 4% combined | No |
| 44 | Montana | 62 | 5.9% top (3.0%–4.1% LTCG) | 2.5% (1031 exempt) | None | Yes |
| 45 | New Jersey | 59 | 10.75% top | GIT/REP prepayment (1031 exempt) | RTF + graduated fees | No |
| 46 | Maine | 58 | 9.15% top | 2.5% (1031 exempt) | $2.20 per $500 | No |
| 47 | Massachusetts | 57 | 5% LTCG / 8.5% STCG + 4% surtax | Sales ≥ $1M (1031 exempt) | $2.28 per $500 | Yes |
| 48 | New York | 52 | 10.9% top | IT-2663 prepayment (1031 exempt) | 0.4% + mansion tax | No |
| 49 | Oregon | 42 | 9.9% top | Yes (1031 exempt) | None | Yes |
| 50 | California | 30 | 13.3% top | 3.33% (1031 exempt) | $0.55 per $500 + city | Yes |
“1031 exempt” means the state’s nonresident withholding is waived for a fully deferred exchange, usually via a certification or exemption form; boot or a failed exchange generally remains subject to withholding. Transfer taxes are never deferred by a 1031 exchange.
The four clawback states
Most states let a deferred gain leave forever when you exchange into out-of-state property. Four do not — they treat the appreciation that accrued in-state as their income and tax it when you eventually recognize the gain, even years later and even if you’ve moved:
- California — the strictest regime. Exchange California property for out-of-state property and you must file FTB Form 3840 every year until the deferred gain is recognized; California then taxes the California-source portion at rates up to 13.3%.
- Oregon — under ORS 316.738, deferred gain on Oregon property exchanged out of state is added back to Oregon taxable income when recognized federally. Tracking is via Form OR-24, filed in the exchange year and annually until disposition.
- Montana — Mont. Admin. R. 42.2.308 requires deferred Montana-source gain to be reported to Montana when it is later recognized federally, with no annual form in between.
- Massachusetts — under 830 CMR 62.5A.1(3)(d), gain reflecting Massachusetts appreciation is Massachusetts-source income when the out-of-state replacement property is eventually sold. There’s no annual tracking form, but the claim persists even after you leave the state.
Exchanging into these states carries no special penalty — the clawback attaches to gain that accrued on property within them.
Methodology
Each state is scored out of 100 across four weighted factors, from the facts on its guide:
- Income-tax burden on the eventually recognized gain (the largest component, roughly half the score). States with no individual income tax on capital gains score this component in full; the higher a state’s top rate on real-estate gains, the more points it loses. States offering a meaningful capital-gains deduction or exclusion (South Carolina’s 44% deduction, North Dakota’s 40% exclusion, New Mexico’s §7-2-34 deduction) earn a partial credit back, since less of the eventual gain is exposed.
- Nonresident withholding friction. No withholding at closing earns full marks. Withholding that exists but fully exempts a qualifying 1031 exchange earns partial credit — the exemption removes the cash-flow hit but leaves the paperwork (certificates, notices, and in some states advance filing deadlines).
- Transfer and documentary taxes. No state transfer, deed, or documentary-stamp tax earns full marks; otherwise the component scales down with the rate, since these taxes hit both legs of an exchange and are never deferred.
- Clawback rules (flat penalty). The four states that track and later tax deferred gain on property exchanged out of state (California, Oregon, Montana, Massachusetts) forfeit this component entirely.
“None identified” in the table means our fact-checked guide for that state found no such tax or requirement. All underlying figures come from our individually fact-checked state guides, each of which cites the state’s Department of Revenue guidance, statutes, and current forms. Rates reflect law in effect for tax year 2026 as of July 2026, including mid-year changes already enacted. Puerto Rico is excluded from the rankings because it operates a separate income-tax system under its own Internal Revenue Code — whether federal §1031 even applies depends on residency and the source of the gain. See our Puerto Rico guide for how exchanges work there. This is methodology version 1; we will re-score annually and note changes.
Frequently asked questions
Yes. Section 1031 is federal law, and every state that taxes income conforms to it — no state taxes a properly structured, fully deferred exchange at the time of the exchange. What varies is the state layer: income-tax rates when gain is eventually recognized, nonresident withholding at closing, transfer taxes on the deeds, and whether the state claws back deferred gain if you exchange into out-of-state property.
Four: California, Oregon, Montana, and Massachusetts. Each treats gain that accrued on in-state property as its own source income and taxes it when you eventually recognize the deferred gain, even after exchanging into another state. California (Form FTB 3840) and Oregon (Form OR-24) require annual tracking filings; Montana and Massachusetts assert the claim without an annual form.
In our 2026 index, Alaska, South Dakota, Tennessee, Texas, and Wyoming tie for first with perfect scores: no state income tax on the gain, no nonresident withholding, no state transfer tax, and no clawback. Florida, Arizona, North Dakota, and Louisiana follow closely. The lowest-ranked states are California, Oregon, and New York, which combine high top rates with withholding paperwork and, for California and Oregon, annual clawback tracking.
No. The 45-day identification and 180-day closing deadlines, the qualified intermediary requirement, and Form 8824 reporting are federal and identical everywhere. State rules add requirements on top — withholding exemption forms that may need filing weeks before closing (West Virginia and Maryland require 21 days' notice), transfer taxes at each closing, and clawback tracking — but they never extend or shorten the federal clocks.
Cite this study
This index is free to reference. Please cite it as: Start1031, “The State of 1031 by State: 2026 Rankings,” 2026, https://start1031.com/1031-exchange-by-state/ — and link to this page so readers can see the current year’s data and methodology. If you spot a rate change we haven’t captured, tell us and we’ll verify it against the primary source.
- New to exchanges? Start with what a 1031 exchange is and how it works.
- Every per-state figure above is explained in depth — with statute and DOR citations — on the linked state guides.
- Browse metro-level market guides for local context.
This page is for educational purposes only and is not legal or tax advice. State tax law changes frequently — the per-state figures summarized here live on our individual state guides, each citing primary sources (state statutes, Department of Revenue guidance, and current forms). Consult a qualified tax professional or attorney about your specific situation.