1031 Exchange in North Dakota
North Dakota conforms to federal 1031 rules by design: the state's Form ND-1 return starts from your federal taxable income, so a properly structured like-kind exchange that defers gain federally also defers North Dakota tax on the same timeline. North Dakota has no separate capital-gains rate — gain flows through federal taxable income and is taxed at the state's low 0%, 1.95%, and 2.50% brackets, and individuals may exclude 40% of net long-term capital gain. There is no state clawback of deferred gain, and North Dakota imposes no statewide real estate transfer tax.
Fast Facts
- State Income Tax on Capital Gains
- No separate capital-gains rate. Gain flows through federal taxable income (the starting point of Form ND-1) and is taxed at North Dakota's 2025 brackets of 0%, 1.95%, and 2.50% (top rate). Individuals may exclude 40% of net long-term capital gain.
- Conforms to Federal 1031
- Yes. Because Form ND-1 begins with federal taxable income, a valid federal like-kind exchange deferral carries into the North Dakota return automatically, on the same timeline.
- Clawback Rule
- None. North Dakota has no statute adding back or recapturing gain deferred on an out-of-state replacement property, unlike a handful of clawback states.
- Non-Resident Withholding
- North Dakota does not impose a mandatory real-estate-closing withholding on nonresident sellers. Nonresidents instead report North Dakota-source gain on Schedule ND-1NR and may owe estimated tax; a fully deferred 1031 exchange generally produces no current North Dakota tax.
- Transfer Tax & Sales Tax
- North Dakota is one of the states with no statewide real estate transfer, deed, or documentary-stamp tax. County recording fees still apply. Verify local rules for any city or county charges.
Why North Dakota Is Straightforward for Exchangers
North Dakota is one of the simplest states in which to run a 1031 exchange, for two structural reasons.
First, conformity is automatic. North Dakota does not re-compute your income from scratch. Line 1b of Form ND-1 imports your federal taxable income, and the state then applies a short list of North Dakota additions and subtractions. Because a federal Section 1031 exchange defers gain before it ever reaches federal taxable income, that deferral simply carries through to your North Dakota return — there is no separate state election, no state-specific like-kind form, and no state disallowance of a valid federal exchange.
Second, there is no clawback. Some states honor the deferral but track the deferred gain and add it back to state income when you eventually sell an out-of-state replacement property. North Dakota has no such provision. Its individual income tax booklet describes the like-kind deferral nowhere as a recapture item, and there is no add-back statute or annual reporting form comparable to those clawback states. If you exchange North Dakota property into replacement property in another state and later sell it while a resident elsewhere, North Dakota does not reach back for the gain that accrued while the property sat in North Dakota.
The practical upshot: North Dakota exchangers focus almost entirely on satisfying the federal requirements — the 45-day identification window, the 180-day closing deadline, use of a Qualified Intermediary, and correct reporting on federal Form 8824. Get the federal exchange right and the North Dakota result follows.
Legal and Tax Considerations
State Income Tax on Capital Gains
No separate capital-gains rate. Taxed through federal taxable income at 0%, 1.95%, and 2.50% (2025 top rate), with a 40% exclusion allowed on net long-term capital gain.
Conforms to Federal 1031
Yes. Form ND-1 starts from federal taxable income, so a valid federal exchange deferral flows through to North Dakota automatically.
Clawback
None. North Dakota has no add-back or recapture of gain deferred into out-of-state replacement property.
Non-Resident Withholding
No mandatory closing withholding on nonresident real-estate sellers. Nonresidents report North Dakota-source gain on Schedule ND-1NR.
Required Documentation
- Federal Form 8824 (Like-Kind Exchanges) filed with your federal return
- Form ND-1 (North Dakota Individual Income Tax Return), which begins from federal taxable income
- Schedule ND-1NR if you are a nonresident or part-year resident reporting North Dakota-source gain
- Qualified Intermediary exchange agreement and assignment documents
- Complete closing/settlement statements for both the relinquished and replacement properties
Clawback Rule
None
Official References
- North Dakota Office of State Tax Commissioner — Individual Income Tax (rates & brackets)
- North Dakota 2025 Individual Income Tax Booklet (Form ND-1, Line 1b federal taxable income; 40% long-term capital gain exclusion worksheet)
- North Dakota Individual Income Tax History (2013: long-term capital gain exclusion set at 40%)
- North Dakota Office of State Tax Commissioner — Nonresident guidance
- IRS Form 8824 — Like-Kind Exchanges
North Dakota Tax Rate and Transaction-Cost Context
North Dakota has some of the lowest individual income tax rates of any state that levies an income tax. For the 2025 tax year, the Office of State Tax Commissioner publishes three rates — 0%, 1.95%, and 2.50% — with the 2.50% top rate reaching only at higher income levels (for single filers, taxable income above $244,825; for married filing jointly, above $298,075). North Dakota does not apply a separate, higher rate to capital gains; because the return begins from federal taxable income, capital gain is taxed at these same low ordinary brackets.
On top of the low rates, North Dakota individuals may exclude 40% of net long-term capital gain from North Dakota taxable income. The state’s Form ND-1 instructions provide a worksheet that multiplies qualifying net long-term capital gain by 40% and subtracts the result. For a nonresident or part-year resident, only net long-term capital gain reportable to North Dakota is eligible. Practically, this means that even without a 1031 exchange, North Dakota’s tax cost on a long-term real-estate gain tends to be modest — but a 1031 exchange still lets you defer the entire federal and state gain rather than paying tax now.
On the transaction side, North Dakota is light. The state imposes no statewide real estate transfer tax, deed tax, or documentary-stamp tax — it is among the minority of states with no such levy. County recording fees still apply to deeds, and you should confirm whether any local city or county charge exists in your area, but there is no broad-based state transfer tax adding friction at closing. The low income-tax rates, the 40% long-term capital gain exclusion, and the absence of a transfer tax together make North Dakota a comparatively low-friction environment for investment real estate — with the 1031 exchange available to defer gain entirely when you reinvest.
Step-by-Step Process
- 1
Engage a Qualified Intermediary Before Closing
For a delayed exchange, retain a Qualified Intermediary (QI) before you close on the relinquished North Dakota property. You cannot take actual or constructive receipt of the sale proceeds — the QI holds the funds and administers the exchange. This is a federal requirement that applies fully in North Dakota.
- 2
Sell the Relinquished Property
Close the sale with the QI receiving the proceeds. Report the disposition on federal Form 8824. Because North Dakota starts from federal taxable income, no separate state like-kind form is required — the deferral flows through your federal numbers.
- 3
Identify Replacement Property Within 45 Days
You have 45 calendar days from the sale of the relinquished property to identify potential replacement property in writing, following the federal identification rules (such as the three-property rule or the 200% rule).
- 4
Close on Replacement Property Within 180 Days
You must acquire the replacement property within 180 calendar days of the sale (or by your tax-return due date including extensions, if earlier). Only real property held for investment or business use qualifies under post-2017 federal law.
- 5
File Federal and North Dakota Returns
Report the exchange on federal Form 8824. On your North Dakota return, the deferral carries through Form ND-1 (Line 1b, federal taxable income). Nonresidents report North Dakota-source items on Schedule ND-1NR. There is no North Dakota clawback to track after the exchange.
Timeline Calculator
Enter the closing date of your relinquished property to calculate your 1031 exchange deadlines:
Frequently Asked Questions
Yes. North Dakota's Form ND-1 individual income tax return begins from your federal taxable income (Line 1b), so a properly structured federal like-kind exchange that defers gain federally also defers North Dakota tax on the same timeline. There is no separate state election or state-specific like-kind form, and North Dakota does not disallow a valid federal 1031 exchange.
No. North Dakota has no statute that adds back or recaptures gain you deferred when exchanging North Dakota property into out-of-state replacement property. Unlike a few clawback states, North Dakota does not track deferred gain or require an annual state reporting form after the exchange.
North Dakota has no separate capital-gains rate. Any recognized gain — including boot in a partial exchange or gain from a failed exchange — flows through federal taxable income and is taxed at North Dakota's 2025 brackets of 0%, 1.95%, and 2.50% (top rate). Individuals may also exclude 40% of net long-term capital gain using the worksheet in the Form ND-1 instructions. Check the North Dakota Office of State Tax Commissioner for current brackets.
North Dakota does not impose a mandatory withholding at closing on nonresident real-estate sellers the way some states do. Instead, a nonresident reports North Dakota-source gain on Schedule ND-1NR and may owe estimated tax. In a fully deferred 1031 exchange, there is generally no current North Dakota gain to tax, though you should confirm your specific facts with a tax professional.
No. North Dakota is one of the states with no statewide real estate transfer tax, deed tax, or documentary-stamp tax. County recording fees still apply to deeds, and you should verify whether any local city or county charge applies in your area, but there is no broad-based state transfer tax on North Dakota conveyances.
Related Guides
- What Is a 1031 Exchange? — the complete federal framework, deadlines, and rules
- 1031 Exchange by State — compare North Dakota with other states’ rules and clawback provisions
- Bismarck, ND
- Fargo, ND
- Grand Forks, ND
References
Official References
- North Dakota Office of State Tax Commissioner — Individual Income Tax (rates & brackets)
- North Dakota 2025 Individual Income Tax Booklet (Form ND-1)
- North Dakota Individual Income Tax History
- North Dakota Office of State Tax Commissioner — Nonresident guidance
- IRS Form 8824 — Like-Kind Exchanges
This information is for educational purposes only and is not legal or tax advice. Consult with qualified professionals regarding your specific situation.