1031 Exchange in Kansas
Kansas follows federal 1031 exchange rules without any state-specific limitations. Since the 2024 tax reform (SB 1, 2024 Special Session), the state has a two-bracket income tax: 5.2% on the first $23,000 of taxable income ($46,000 for married filing jointly) and 5.58% above that, making 5.58% the top marginal rate. Kansas imposes no real estate transfer tax and no withholding on non-resident sellers, which keeps transaction friction low for 1031 exchange investors.
Fast Facts
- State Income Tax on Capital Gains
- 5.2% - 5.58% (two brackets). Kansas taxes capital gains as ordinary income: 5.2% on the first $23,000 of taxable income ($46,000 married filing jointly) and 5.58% above that. The top marginal rate is 5.58% (SB 1, 2024 Special Session). This tax can be deferred through a 1031 exchange.
- Conforms to Federal 1031
- Yes. Kansas starts its income tax calculation from federal adjusted gross income, so gain deferred under federal Section 1031 is also deferred for Kansas purposes.
- Non-Resident Withholding
- None. Kansas does not impose withholding on non-residents selling real property, making the process simpler for out-of-state investors.
- Real Estate Transfer Tax
- None. Kansas does not impose a real estate transfer tax, which reduces transaction costs for 1031 exchanges.
- Property Tax Rates
- Varies by county. The statewide effective rate on owner-occupied housing is approximately 1.21% (Tax Foundation), somewhat above the national average; county-level figures range higher.
Legislative Updates
Income Tax Trigger Law (SB 269)
The Legislature enacted SB 269 over the Governor's veto. It creates a revenue-trigger mechanism that gradually reduces both individual income tax rates toward a flat 4% in years when state general fund receipts exceed inflation-adjusted FY 2024 levels and the budget stabilization fund holds a 15% balance. The Department of Revenue announced no rate cut for tax year 2026, so rates remain 5.2% and 5.58%.
Income Tax Reform (SB 1, 2024 Special Session)
Governor Laura Kelly signed omnibus tax legislation consolidating Kansas's three income tax brackets into two, lowering the top marginal rate from 5.7% to 5.58% and the lower rate from 5.25% to 5.2%, retroactive to January 1, 2024.
1031 Exchange Sales Excluded from Property Tax Valuation
The same 2024 Special Session legislation (codified at K.S.A. 79-503a) provides that the sale price in a federal Internal Revenue Code Section 1031 exchange shall not be considered an indicator of fair market value, and that 1031 exchange transactions shall not be used as comparable sales for valuation purposes or in sales ratio studies.
Legal and Tax Considerations
State Income Tax on Capital Gains
5.2% - 5.58% (two brackets). Kansas taxes capital gains as ordinary income: 5.2% on the first $23,000 of taxable income ($46,000 married filing jointly) and 5.58% above that. The top marginal rate is 5.58% (SB 1, 2024 Special Session). This tax can be deferred through a 1031 exchange.
Conforms to Federal 1031
Yes. Kansas starts its income tax calculation from federal adjusted gross income, so gain deferred under federal Section 1031 is also deferred for Kansas purposes.
Non-Resident Withholding
None. Kansas does not impose withholding on non-residents selling real property, making the process simpler for out-of-state investors.
Real Estate Transfer Tax
None. Kansas does not impose a real estate transfer tax, which reduces transaction costs for 1031 exchanges.
Property Tax Rates
Varies by county. The statewide effective rate on owner-occupied housing is approximately 1.21% (Tax Foundation), somewhat above the national average; county-level figures range higher.
Required Documentation
- Federal Form 8824
- Kansas Form K-40
- Complete closing statements for both properties
- Qualified Intermediary agreement
Clawback Rule
None
Step-by-Step Process
- 1
Identify Replacement Property
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.
- 2
Engage a Qualified Intermediary
Work with a qualified intermediary to handle the exchange funds and documentation. Kansas imposes no state-specific registration regime on qualified intermediaries, so vet your QI's bonding, insurance, and track record carefully.
- 3
Close on Replacement Property
Complete the purchase of your replacement property within 180 days of selling your relinquished property. Kansas does not impose a real estate transfer tax, which reduces transaction costs.
- 4
File Tax Returns
Report your 1031 exchange on your federal tax return using Form 8824 and on your Kansas state tax return (Form K-40). Because Kansas starts from federal adjusted gross income, the deferral flows through automatically.
- 5
Property Tax Considerations
Kansas property tax rates vary by county and municipality. When selecting replacement properties, research the local mill levies and recent reassessment history, as these can impact your investment returns.
- 6
Agricultural Land Exchanges
Kansas has a strong agricultural economy, and farmland exchanges have unique considerations. If exchanging into agricultural land, research soil quality, water rights, drainage, and crop history. Consider consulting with an agricultural specialist in addition to your 1031 exchange team.
Timeline Calculator
Enter the closing date of your relinquished property to calculate your 1031 exchange deadlines:
Common Pitfalls
Misunderstanding regional market differences
Issue
Kansas real estate markets vary significantly between regions, with different economic drivers, growth patterns, and investment characteristics.
Prevention
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.
Overlooking property tax variations
Issue
Kansas property tax rates vary significantly by county and municipality, which can impact investment returns.
Prevention
Research property tax rates and assessment practices in specific counties and municipalities before identifying replacement properties. Understand how property classifications and mill levies may affect your investment over time.
Ignoring recent legislative changes
Issue
2024 Kansas legislation (K.S.A. 79-503a) specifies that 1031 exchange transactions shall not be used as comparable sales or indicators of fair market value for property tax valuation purposes.
Prevention
Consult with a tax professional familiar with Kansas property tax law to understand how this change may affect your replacement property's assessment. Consider this factor when evaluating potential replacement properties.
Underestimating agricultural land complexities
Issue
Agricultural land in Kansas has unique considerations, including water rights, irrigation systems, and conservation requirements.
Prevention
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.
Frequently Asked Questions
Does Kansas conform to federal 1031 exchange rules?
Yes. Kansas starts its income tax calculation from federal adjusted gross income, so gain deferred under federal Section 1031 is also deferred for Kansas income tax purposes. Kansas has no “clawback” provision (unlike California, Oregon, Montana, and Massachusetts), meaning it does not require ongoing reporting of deferred gain after you exchange out of Kansas property.
What is Kansas’s state income tax rate on capital gains?
Kansas taxes capital gains as ordinary income under a two-bracket system enacted in 2024: 5.2% on the first $23,000 of taxable income ($46,000 for married filing jointly) and 5.58% on income above that. The top marginal rate is 5.58%. Under the 2025 SB 269 trigger law, these rates may gradually fall toward 4% in future years if state revenue targets are met; the Department of Revenue announced no reduction for tax year 2026. State tax on the gain can be deferred through a 1031 exchange.
Does Kansas have any special withholding requirements for non-residents selling real estate?
No. Kansas does not impose withholding on non-residents selling real property, making the process simpler for out-of-state investors engaging in 1031 exchanges.
How do property taxes in Kansas compare to other states?
Kansas property taxes are somewhat above the national average. The Tax Foundation reports a statewide effective rate of approximately 1.21% on owner-occupied housing, but rates vary significantly by county and municipality, so research local mill levies for any specific replacement property.
Major Cities
Wichita, Overland Park, Kansas City, Olathe, Topeka, Lawrence, Shawnee, Manhattan, Lenexa, Salina, Hutchinson, Leavenworth, Leawood, Dodge City, Garden City
References
Official References
- Kansas Department of Revenue
- Kansas Department of Revenue - Selected Kansas Tax Rates
- K.S.A. 79-503a - Fair market value defined
- Kansas Legislature - SB 269 (2025)
- IRS - Like-Kind Exchanges (IRC Section 1031)
This information is for educational purposes only and is not legal or tax advice. Consult with qualified professionals regarding your specific situation.