Arkansas follows federal 1031 exchange rules with a state income tax rate of up to 5.5%, offering investors affordable real estate opportunities in growing markets like Little Rock and Fayetteville.
This information is for educational purposes only and is not legal or tax advice. Consult with qualified professionals regarding your specific situation.
Important regulations and tax implications for your exchange
Up to 5.5%
Yes
$3.30 per $1,000
Follows federal guidelines
Follows federal guidelines
• Federal Form 8824 • Complete closing statements for both properties • Arkansas Form AR1000F (for state income tax reporting)
None
Informational step-by-step guide for your 1031 exchange
You must identify potential replacement properties within 45 days of selling your relinquished property. In Arkansas, consider property tax implications and local market trends when identifying properties.
Work with a qualified intermediary to handle the exchange funds and documentation. Several national and local QIs serve the Arkansas market with expertise in the state's real estate practices.
Complete the purchase of your replacement property within 180 days of selling your relinquished property. Arkansas closing processes typically take 30-45 days.
Report your 1031 exchange on your federal tax return for the year of the exchange. Arkansas state income tax returns must also report the exchange, though gain is deferred for state purposes as well.
Be aware that property tax assessments in Arkansas are based on 20% of the property's market value, with rates varying by county and municipality. Annual property taxes typically range from 0.5% to 1.2% of assessed value.
In Arkansas, flood zone status is a critical consideration, especially for properties near the Arkansas, Mississippi, and White Rivers. Verify flood zone status and insurance requirements before completing your exchange.
For rural properties in Arkansas, conduct thorough due diligence on access rights, mineral rights, and timber value, as these can significantly impact property value and usability.
Recent changes and upcoming regulations affecting 1031 exchanges
While there were no significant changes to Section 1031 of the Tax Code in 2024, 2025 may bring new proposals that could potentially affect 1031 Exchanges. Investors should stay informed about potential legislative changes.
A partial repeal of Section 1031 was proposed, which would limit the ability to defer eligible gains over $500,000 per taxpayer ($1 million for married filing jointly). This proposal could significantly impact high-value exchanges in Arkansas.
The 2025 Federal Budget includes potential tax changes that might impact real estate investors, including modifications to 1031 exchanges, carried interest taxation, and New Market Tax Credits.
Plan and track your critical exchange deadlines
Enter the closing date of your relinquished property to calculate your 1031 exchange deadlines:
Detailed analysis of key real estate markets in your area
Different regions within this state offer unique opportunities and challenges for 1031 exchanges. Here's an overview of key regional markets and their characteristics.
Northwest Arkansas offers a diverse economy centered around corporate headquarters, the University of Arkansas, and a growing technology sector, with strong population growth and development activity.
Little Rock offers a stable market driven by government, healthcare, and financial services, with affordable entry points and steady appreciation.
Hot Springs offers a tourism and retirement-driven market with strong vacation rental performance and growing commercial development.
Jonesboro offers a university town with a diverse economy based on education, healthcare, manufacturing, and agriculture.
Investment property insights for Arkansas
Multifamily properties in Arkansas offer attractive returns compared to many markets, with particularly strong performance in Northwest Arkansas, Little Rock, and growing university towns.
Office properties in Arkansas present a mixed picture, with strong performance in certain submarkets and property types, particularly medical office and suburban Class A space.
Retail properties in Arkansas have shown resilience compared to national trends, with neighborhood centers and service-oriented retail performing particularly well.
Industrial properties have seen increasing demand in Arkansas due to e-commerce growth, manufacturing expansion, and the state's central location for regional distribution.
Local tax benefits and programs for property investors
Beyond the tax deferral benefits of a 1031 exchange, this state offers additional tax incentives that can further enhance your investment returns. Review these programs to see if your replacement property might qualify. Please contact a tax professional prior to electing any tax incentive to determine if there are any additional tax concerns or benefits available to you.
Federal tax incentive program that allows investors to defer and potentially reduce capital gains taxes by investing in designated economically distressed communities.
Deferral of capital gains taxes, potential reduction of tax basis, and potential elimination of taxes on appreciation
Benefits vary based on holding period
Invest through a Qualified Opportunity Fund within 180 days of realizing capital gains
Cash rebate program for businesses that create new, full-time permanent jobs, potentially benefiting commercial property owners through increased tenant demand and property values.
Cash rebate of 3.9% to 5% of payroll for new jobs for up to 10 years
Up to 10 years
Submit application to Arkansas Economic Development Commission, receive approval, and meet ongoing reporting requirements
Tax credit for the rehabilitation of historic structures, which can be combined with federal historic tax credits for significant tax benefits.
25% of eligible rehabilitation expenses, up to $500,000 per project
5-year carryforward period
Submit application to Arkansas Historic Preservation Program, receive approval, and complete rehabilitation according to approved plans
Real 1031 exchange examples from Arkansas
Current market conditions and future forecasts
Strong growth driven by corporate headquarters, university presence, and quality of life improvements.
Steady growth with increasing interest in revitalized downtown areas and healthcare corridors.
Growing demand for vacation and retirement properties, with tourism driving commercial investment.
Moderate growth driven by education, healthcare, and manufacturing sectors.
Long-term appreciation analysis in Arkansas
Understanding historical property appreciation patterns can help you identify areas with strong long-term growth potential for your 1031 exchange replacement property.
12.9%
38.7%
87.2%
Strong continued growth expected, particularly in Fayetteville and Bentonville areas
8.3%
24.6%
62.1%
Steady growth projected, with stronger performance in revitalized urban areas
7.5%
21.8%
54.3%
Moderate growth expected, driven by education and healthcare sectors
9.2%
26.4%
58.7%
Continued appreciation expected in tourism and retirement-oriented areas
Current rental trends and opportunities in Arkansas
Understanding the rental market is crucial when selecting investment properties for your 1031 exchange. This analysis provides insights into current rental conditions across the state.
| Property Type | Avg. Rent | Vacancy Rate | Rent Trend | Cap Rate |
|---|---|---|---|---|
| Luxury Apartments | $1,100 - $1,600 (1BR) | 5.8% | up | 5.5% - 6.3% |
| Class B Apartments | $800 - $1,100 (1BR) | 4.5% | up | 6.3% - 7.0% |
| Single Family Homes | $1,200 - $1,800 (3BR) | 3.8% | up | 5.8% - 6.5% |
Little Rock's rental market includes a diverse mix of government employees, healthcare workers, and young professionals. Approximately 38% of renters are under 35 years old. The market has seen an increase in professionals seeking urban amenities with more affordable housing costs.
Little Rock has relatively landlord-friendly regulations compared to many major cities. The city does not have rent control or significant additional tenant protections beyond state law. Short-term rental regulations are minimal but vary by neighborhood.
Little Rock's rental market is expected to remain stable with moderate growth, particularly in areas near major healthcare employers and with good access to downtown amenities. The influx of new residents from higher-cost markets is driving demand for quality rental housing.
| Property Type | Avg. Rent | Vacancy Rate | Rent Trend | Cap Rate |
|---|---|---|---|---|
| Luxury Apartments | $1,200 - $1,800 (1BR) | 5.2% | up | 5.3% - 6.0% |
| Class B Apartments | $900 - $1,200 (1BR) | 4.1% | up | 6.0% - 6.8% |
| Single Family Homes | $1,400 - $2,100 (3BR) | 3.5% | up | 5.5% - 6.3% |
Northwest Arkansas's rental market is heavily influenced by corporate employees from Walmart, Tyson, and J.B. Hunt, along with University of Arkansas students and faculty. The market has a high percentage of young professionals, with approximately 42% of renters under 35 years old.
Northwest Arkansas cities have minimal rental regulations beyond state requirements. The region has been working to address housing affordability through incentives rather than regulations. Short-term rental regulations vary by city, with Fayetteville having more developed regulations than surrounding areas.
Northwest Arkansas's rental market is projected to see continued strong growth, particularly in areas near corporate headquarters, the university, and cultural amenities. The region's strong job market and quality of life improvements continue to attract both investors and renters.
| Property Type | Avg. Rent | Vacancy Rate | Rent Trend | Cap Rate |
|---|---|---|---|---|
| Luxury Apartments | $1,000 - $1,500 (1BR) | 6.5% | up | 5.8% - 6.5% |
| Class B Apartments | $750 - $1,000 (1BR) | 5.2% | up | 6.5% - 7.2% |
| Vacation Rentals | $150 - $300 (nightly) | 40% (annual average) | up | 6.0% - 7.0% |
Hot Springs's rental market caters to tourism industry workers, retirees, and seasonal visitors. The market has a significant seasonal component with tourism peaks during summer months and racing season. Approximately 35% of renters are over 55 years old.
Hot Springs has minimal rental regulations beyond state requirements. The city has been developing more comprehensive short-term rental regulations in response to the growing vacation rental market. HOA regulations are common in resort and lakefront communities.
Hot Springs's rental market is expected to continue its steady growth, with particularly strong performance in the vacation rental segment. The combination of tourism, retirement migration, and the expanding Oaklawn Racing and Gaming facility continues to drive rental demand.
Key mistakes to avoid in your 1031 exchange
Arkansas has numerous rivers and water bodies, and flood zone status can significantly impact property value, insurance costs, and usability.
Conduct thorough due diligence on flood zone status, including FEMA flood maps and historical flooding data. Consider flood insurance costs in your financial analysis and understand potential development restrictions in flood-prone areas.
Arkansas has distinct regional markets with different demand drivers, tenant profiles, and growth patterns that can significantly impact investment performance.
Research specific regional markets rather than relying on statewide averages. Connect with local real estate professionals who understand the nuances of each market and can provide insights on neighborhood-specific trends.
In rural Arkansas properties, mineral rights, timber value, and access rights can significantly impact property value and future development potential.
Conduct thorough title research to verify ownership of mineral rights and timber rights. Consult with specialists in these areas to assess the value and potential impact on your investment strategy.
Tourism-driven markets like Hot Springs and the Ozarks can have significant seasonal fluctuations in occupancy and rental rates that affect cash flow projections.
Research seasonal patterns in your target market and factor these fluctuations into your financial projections. Consider properties with a mix of short-term and long-term rental potential to smooth out seasonal variations.
Common questions about Arkansas 1031 exchanges
Yes, Arkansas follows federal 1031 exchange rules without any additional state-specific requirements or modifications.
You need to file federal Form 8824 (Like-Kind Exchanges) with your federal tax return and report the exchange on your Arkansas state income tax return (Form AR1000F). There are no additional state forms specific to 1031 exchanges.
While Arkansas follows federal 1031 exchange rules, investors should be aware of the state's 5.5% income tax rate, which applies to capital gains when properties are eventually sold. Additionally, Arkansas imposes a real estate transfer tax of $3.30 per $1,000 of property value, which applies to both the relinquished and replacement properties in a 1031 exchange.