Kansas follows federal 1031 exchange rules with a progressive state income tax system ranging from 5.20% to 5.70%.
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
5.20% - 5.70% (progressive)
Yes
None
None
Varies by county (1.4% average)
• Federal Form 8824 • Kansas Form K-40 • Complete closing statements for both properties • Qualified Intermediary agreement
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 Kansas, consider regional market differences, property tax variations, and local economic factors when identifying properties.
Work with a qualified intermediary to handle the exchange funds and documentation. Kansas has several experienced QIs who understand the local market and can help navigate the state's unique considerations.
Complete the purchase of your replacement property within 180 days of selling your relinquished property. Be aware that Kansas does not impose a real estate transfer tax, which reduces transaction costs.
Report your 1031 exchange on your federal tax return using Form 8824 and on your Kansas state tax return. Kansas follows federal guidelines for 1031 exchanges, so the reporting is relatively straightforward.
Kansas's property tax rates vary by county and municipality, with a statewide average of approximately 1.4%. When selecting replacement properties, research the local property tax rates and recent reassessment history, as these can impact your investment returns.
Kansas real estate markets vary significantly between regions. The Kansas City metro area offers strong growth potential but higher entry costs, while secondary markets like Wichita and Topeka offer more affordable entry points with different economic drivers. Research regional economic trends, employment data, and population growth when selecting replacement properties.
Kansas has a strong agricultural economy, and farmland exchanges have unique considerations. If exchanging into agricultural land, research soil quality, drainage, crop history, and potential for value-added improvements. Consider consulting with an agricultural specialist in addition to your 1031 exchange team.
Recent changes and upcoming regulations affecting 1031 exchanges
The Kansas House passed Senate Bill 269, known as 'the income tax trigger bill,' which would reduce the individual and corporate income tax rates to as low as 4% if the state maintains surplus funds.
Kansas lawmakers passed legislation specifying that federal internal revenue code section 1031 exchange transactions shall not be used as comparable sales for valuation purposes nor as valid sales for purposes of property tax assessment.
Kansas Governor Laura Kelly signed omnibus tax legislation which modifies income tax rates for individuals, maintaining the progressive structure with rates from 5.20% to 5.70%.
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.
The Kansas City metro area offers a diverse urban and suburban market with strong job growth, cultural amenities, and economic diversity.
Wichita offers an affordable market with steady growth, aerospace industry, and manufacturing base.
Topeka offers an affordable market with moderate growth, government employment, and healthcare.
Lawrence offers a stable university market with strong rental demand, cultural amenities, and research and development.
Investment property insights for Kansas
Multi-family properties in Kansas offer strong returns with robust tenant demand, particularly in Kansas City, Lawrence, and Wichita.
Retail properties in Kansas present mixed opportunities, with strong performance in certain submarkets and challenges in others.
Office properties in Kansas face challenges from remote work trends, though certain submarkets and property types show resilience.
Agricultural properties in Kansas offer stable returns with long-term appreciation potential, particularly in areas with high-quality soil and water access.
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.
Kansas has designated Opportunity Zones across the state, which can provide additional tax benefits when combined with a 1031 exchange.
Deferral of capital gains, reduction of deferred gain, and potential elimination of tax on appreciation
Benefits vary based on holding period, with maximum benefits at 10+ years
Invest through a Qualified Opportunity Fund within 180 days of realizing capital gains
Tax incentives for businesses making capital investments, which can benefit commercial property investors.
Investment tax credits, training tax credits, sales tax exemptions
Varies based on project specifics
Submit application to Kansas Department of Commerce, receive approval, and meet ongoing reporting requirements
Tax incentives for individuals moving to designated rural counties, which can benefit investors in these areas.
Kansas income tax waivers, student loan repayment assistance
Up to 5 years
Submit application to Kansas Department of Commerce, receive approval, and meet ongoing reporting requirements
Real 1031 exchange examples from Kansas
Current market conditions and future forecasts
Strong growth, particularly in Johnson County.
Steady growth with 6.8% appreciation over five years.
Moderate growth with 5.9% appreciation over five years.
Strong growth with 7.5% appreciation over five years.
Long-term appreciation analysis in Kansas
Understanding historical property appreciation patterns can help you identify areas with strong long-term growth potential for your 1031 exchange replacement property.
8.2%
45.6%
92.3%
Strong growth expected to continue, with Kansas City ranked among the top 10 housing hot spots for 2025
6.8%
38.5%
76.2%
Steady growth projected, with home prices expected to rise by 6% in 2025
5.9%
32.7%
68.4%
Moderate growth with stable appreciation
7.5%
41.2%
85.6%
Strong growth expected to continue, particularly near campus
Current rental trends and opportunities in Kansas
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 - $1,700 (1BR) | 5.0% | up | 5.5% - 6.5% |
| Mid-Range Apartments | $800 - $1,100 (1BR) | 3.8% | up | 6.5% - 7.5% |
| Single Family Homes | $1,300 - $2,100 (3BR) | 3.2% | up | 6.0% - 7.0% |
The Kansas City metro area rental market includes a diverse mix of young professionals, families, and empty nesters. Approximately 38% of renters are under 35 years old. The market has a significant component of healthcare, technology, and financial services professionals.
Kansas City has balanced landlord-tenant regulations that provide reasonable protections for both parties. The city follows state law regarding security deposits, lease terms, and eviction procedures, creating a straightforward operating environment for landlords.
The Kansas City metro area rental market is expected to remain strong with continued growth, particularly in Johnson County suburbs and neighborhoods experiencing revitalization. The combination of job opportunities, cultural amenities, and affordability supports rental demand.
| Property Type | Avg. Rent | Vacancy Rate | Rent Trend | Cap Rate |
|---|---|---|---|---|
| Luxury Apartments | $900 - $1,400 (1BR) | 5.5% | stable | 6.0% - 7.0% |
| Mid-Range Apartments | $700 - $900 (1BR) | 4.2% | stable | 7.0% - 8.0% |
| Single Family Homes | $1,100 - $1,800 (3BR) | 3.8% | stable | 6.5% - 7.5% |
Wichita's rental market includes a mix of aerospace workers, healthcare professionals, students, and families. The market has a significant component of manufacturing and healthcare professionals.
Wichita follows state landlord-tenant law without significant additional local regulations. This creates a landlord-friendly environment with predictable rules and procedures.
Wichita's rental market is expected to remain stable with moderate growth, particularly in areas near major employers and educational institutions. The combination of affordability and job opportunities supports rental demand.
| Property Type | Avg. Rent | Vacancy Rate | Rent Trend | Cap Rate |
|---|---|---|---|---|
| Student Apartments | $750 - $1,300 (per bedroom) | 3.5% | up | 6.0% - 7.0% |
| Mid-Range Apartments | $850 - $1,200 (1BR) | 3.0% | up | 6.5% - 7.5% |
| Single Family Homes | $1,400 - $2,200 (3BR) | 2.5% | up | 5.5% - 6.5% |
Lawrence's rental market is dominated by students, faculty, and staff associated with the University of Kansas. Approximately 55% of renters are affiliated with the university. Seasonal demand patterns align with academic calendars.
Lawrence has some additional local ordinances related to rental properties, including rental permit requirements and occupancy limits. Landlords should be familiar with these local regulations to ensure compliance.
Lawrence's rental market is projected to remain strong with continued growth, particularly in areas close to campus and downtown. Limited supply and steady demand from the university community support rental growth.
Key mistakes to avoid in your 1031 exchange
Kansas real estate markets vary significantly between regions, with different economic drivers, growth patterns, and investment characteristics.
Conduct thorough research on the specific regional market where you're considering purchasing replacement property. Understand the local economic drivers, employment trends, and growth patterns. Consider consulting with a real estate professional who specializes in that specific market.
Kansas's property tax rates vary significantly by county and municipality, which can impact investment returns.
Research property tax rates and assessment practices in specific counties and municipalities before identifying replacement properties. Understand how property classifications and assessment limitations may affect your investment over time.
Recent Kansas legislation specifies that 1031 exchange transactions shall not be used as comparable sales for valuation purposes, which can affect property tax assessments.
Consult with a tax professional familiar with Kansas property tax laws to understand how this legislative change may impact your replacement property's assessment. Consider this factor when evaluating potential replacement properties.
Agricultural land in Kansas has unique considerations, including water rights, irrigation systems, and conservation requirements.
If exchanging into agricultural land, work with professionals who specialize in farmland transactions. Consider factors such as soil quality, water rights, irrigation infrastructure, and potential for value-added improvements. Understand the legal and practical aspects of agricultural property ownership in Kansas.
Common questions about Kansas 1031 exchanges
Yes, Kansas fully conforms to federal 1031 exchange rules. If the Section 1031 exchange is valid at the federal level, it is valid at the state level, and Kansas never gets to tax the gain deferred under federal law.
Kansas imposes a progressive state income tax rate on all income, including capital gains. The rate is 5.20% on the first $23,000 of income and 5.58% on income above that, with a top marginal rate of 5.70%. This tax can be deferred through a 1031 exchange.
No, Kansas does not impose withholding requirements on non-residents selling real property, making the process simpler for out-of-state investors engaging in 1031 exchanges.
Kansas's property tax rates vary by county and municipality, with a statewide average of approximately 1.4%. This is slightly above the national average, but rates can vary significantly depending on the specific location within the state.