1031 Exchange in North Carolina
North Carolina conforms to the federal like-kind exchange rules under IRC Section 1031, so a properly structured exchange defers state as well as federal tax on the gain. North Carolina uses a single flat individual income tax rate — 3.99% for tax years beginning in 2026 — and capital gains are taxed as ordinary income at that flat rate, so a valid exchange defers the state tax that would otherwise apply. Unlike some states, North Carolina does not withhold a percentage of the sale price from nonresident sellers of real estate; instead, the buyer files an informational Form NC-1099NRS reporting the sale. There is no state clawback provision that recaptures deferred gain when you exchange out of North Carolina property.
Fast Facts
- State Income Tax on Capital Gains
- North Carolina taxes capital gains as ordinary income at its flat individual income tax rate — 3.99% for tax years beginning in 2026 (down from 4.25% in 2025 and 4.50% in 2024). A valid 1031 exchange defers this state tax along with the federal tax.
- Conforms to Federal 1031
- Yes. North Carolina begins from federal taxable income, so a like-kind exchange that qualifies under IRC Section 1031 at the federal level also defers North Carolina income tax on the gain.
- Nonresident Sale Withholding
- None. North Carolina does not withhold a percentage of the sale price from nonresident sellers of real property. Instead, the buyer files informational Form NC-1099NRS with the Department of Revenue within 15 days of closing.
- Excise (Transfer) Tax
- $1 per $500 of consideration ($2 per $1,000), paid to the county register of deeds before recording, under G.S. 105-228.30. A handful of counties levy an additional local land transfer tax.
- Clawback Status
- No clawback. North Carolina has no statute that recaptures previously deferred gain when you exchange North Carolina property for replacement property in another state.
Legal and Tax Considerations
North Carolina’s tax treatment of a 1031 exchange is straightforward because the state does not have its own separate like-kind exchange regime. The North Carolina individual income tax starts from federal taxable income, so when gain is deferred under Section 1031 on your federal return, it is also excluded from the income North Carolina taxes for that year. The deferred gain is preserved in the basis of your replacement property and is recognized for both federal and state purposes only when you eventually sell in a taxable transaction.
Two points are worth understanding clearly. First, North Carolina taxes capital gains the same as ordinary income — there is no separate, preferential state capital-gains rate — and the state applies a single flat rate to all taxable income. That flat rate has been declining under a scheduled reduction: it was 4.50% for 2024, 4.25% for 2025, and 3.99% for tax years beginning in 2026. Deferring the gain through a valid exchange defers state tax at whatever that flat rate is in the year of an eventual taxable sale.
Second, North Carolina does not impose a nonresident real-property-sale withholding. Some states require the closing agent to withhold a percentage of the sale price from an out-of-state seller as a prepayment of state income tax. North Carolina instead requires the buyer to file Form NC-1099NRS, Report of Sale of Real Property by Nonresidents, within 15 days of closing. That form simply reports the seller, the buyer, the gross sales price, and the closing date; it does not withhold any tax at the table. A nonresident who recognizes gain on a North Carolina sale still reports and pays North Carolina income tax through the normal return, and a nonresident who defers gain in a valid 1031 exchange defers that tax like any other taxpayer.
State Income Tax on Capital Gains
Taxed as ordinary income at North Carolina's flat rate — 3.99% for tax years beginning in 2026.
Conforms to Federal 1031
Yes. State income tax begins from federal taxable income, so a valid federal exchange defers North Carolina tax on the gain.
Nonresident Sale Withholding
None. Buyer files informational Form NC-1099NRS within 15 days of closing; no percentage is withheld at the table.
Excise (Transfer) Tax
$1 per $500 of consideration ($2 per $1,000) under G.S. 105-228.30, paid to the county register of deeds.
Required Documentation
- Federal Form 8824 (Like-Kind Exchanges), filed with your federal return
- North Carolina individual income tax return (Form D-400), which flows from federal taxable income
- Form NC-1099NRS filed by the buyer when the seller is a nonresident (informational report of sale)
- Qualified Intermediary exchange agreement and assignment documents
- Closing statements for both the relinquished and replacement properties
Clawback Rule
None
Step-by-Step Process
The mechanics of a delayed (forward) exchange are set by federal law and apply the same way in North Carolina as anywhere else. Only real property held for investment or productive use in a trade or business qualifies, and the strict 45-day and 180-day deadlines are not extendable except under narrow IRS disaster relief.
- 1
Engage a Qualified Intermediary before closing
For a delayed exchange, you must retain a Qualified Intermediary (QI) and sign the exchange agreement before you close on the relinquished North Carolina property. You cannot take actual or constructive receipt of the sale proceeds; the QI holds them. Line this up well ahead of your closing date.
- 2
Sell the relinquished property
Close the sale of your North Carolina property with the QI receiving the proceeds. The county register of deeds collects the excise tax ($1 per $500 of consideration) before recording the deed. If you are a nonresident seller, the buyer will file Form NC-1099NRS reporting the sale within 15 days.
- 3
Identify replacement property within 45 days
You have 45 calendar days from the sale closing to identify potential replacement property in writing to your QI. The identification must follow federal rules (commonly the three-property rule or the 200% rule).
- 4
Close on replacement property within 180 days
You must acquire the replacement property within 180 days of the relinquished-property sale (or by your federal return due date, including extensions, if earlier). To fully defer gain, reinvest all net proceeds and acquire property of equal or greater value and debt.
- 5
Report the exchange on your tax returns
Report the exchange on federal Form 8824 for the year of the relinquished-property sale. Because North Carolina income tax begins from federal taxable income, the deferral carries through to your North Carolina return (Form D-400) automatically.
Timeline Calculator
Use the calculator below to see your 45-day identification and 180-day closing deadlines based on your relinquished-property closing date.
Enter the closing date of your relinquished property to calculate your 1031 exchange deadlines:
Frequently Asked Questions
Yes. North Carolina's individual income tax is calculated starting from federal taxable income, so gain that is deferred under IRC Section 1031 on your federal return is also excluded from North Carolina income for that year. If the exchange qualifies federally, the state tax on the gain is deferred as well.
Any gain you actually recognize — for example, cash 'boot' you receive, or the entire gain if the exchange fails to meet the 45-day or 180-day deadlines — is taxed by North Carolina as ordinary income at its flat individual income tax rate, which is 3.99% for tax years beginning in 2026. There is no separate, lower state capital-gains rate.
No. Unlike some states, North Carolina does not require the closing agent to withhold a percentage of the sale price from an out-of-state seller. Instead, the buyer files informational Form NC-1099NRS with the Department of Revenue within 15 days of closing. The nonresident seller still reports any recognized gain on a North Carolina return, and a valid 1031 exchange defers that tax.
North Carolina levies an excise tax on conveyances of $1 for each $500 of consideration (equivalently $2 per $1,000) under G.S. 105-228.30, paid to the county register of deeds before the deed is recorded. A small number of counties impose an additional local land transfer tax. The excise tax applies to the deed itself and is not waived by a 1031 exchange.
No. North Carolina has no clawback statute requiring you to pay back previously deferred North Carolina gain when you later exchange North Carolina property for replacement property located in another state. (California, Massachusetts, Montana, and Oregon are the states known for clawback-style tracking; North Carolina is not among them.)
Related Guides
- What is a 1031 exchange? The complete guide — federal rules, deadlines, and requirements that apply in every state.
- 1031 exchanges by state — compare how each state taxes and treats like-kind exchanges.
North Carolina metro guides
- Charlotte–Concord–Gastonia
- Durham–Chapel Hill
- Greensboro–High Point
- Fayetteville
- Greenville
- Hickory–Lenoir–Morganton
- Jacksonville
- Goldsboro
- Burlington
This information is for educational purposes only and is not legal or tax advice. Tax rates and rules change; verify current figures with the North Carolina Department of Revenue and consult a qualified tax advisor or attorney about your specific situation.