Published 04/17/2026
State Tax Rates and Rules That Impact Real Estate Investing and 1031 Exchanges [2026]
While federal tax rules play a major role in real estate investing, state-level laws and taxes can be just as influential, and they vary widely across the country. From income and capital gains taxes to transfer taxes, property taxes, and clawback rules, state-specific requirements can materially affect transaction costs, net proceeds, and reinvestment strategies.
For investors considering a 1031 exchange, understanding state treatment is especially important. Some states fully conform to federal 1031 rules, while others impose additional requirements or recapture provisions that may affect how and where you reinvest.
Below is a snapshot of key state-level tax rates and rules for 2026 that commonly affect real estate transactions and investment decisions. Because state laws differ and may change over time, always confirm this information with your tax advisor and official local sources.
State Income Tax Rates for 2026
State income tax rates matter for real estate investors because they can apply to rental income, taxable gains, and in many states, amounts that are treated as ordinary income, such as certain recapture items. They can also influence where you choose to invest, how you structure ownership, and what you may owe when a transaction doesn’t qualify for full deferral.
States With No State Income Tax in 2026
The following states do not impose a state-level income tax on individuals: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington* and Wyoming.
*Note: Washington has limited taxes on certain types of investment income, including a state-level capital gains tax, but does not tax earned income in the traditional sense.
2026 State Income Tax Rates
State | Flat Rate or Graduated Range |
Alabama | 2% – 5% |
Arizona | 2.5% |
Arkansas | 2% – 3.9% |
California | 1% – 13.3% |
Colorado | 4.4% |
Connecticut | 2% – 6.99% |
Delaware | 2.2% – 6.6% |
District of Columbia | 4% – 10.75% |
Georgia | 5.19% |
Hawaii | 1.4% – 11% |
Idaho | 5.3% |
Illinois | 4.95% |
Indiana | 2.95% |
Iowa | 3.8% |
Kansas | 5.2% – 5.58% |
Kentucky | 3.5% |
Louisiana | 3% |
Maine | 5.8% – 7.15% |
Maryland | 2% – 6.5% |
Massachusetts | 5% – 9% |
Michigan | 4.25% |
Minnesota | 5.35% – 9.85% |
Mississippi | 4% |
Missouri | 2% – 4.7% |
Montana | 4.7% – 5.65% |
Nebraska | 2.46% – 4.55% |
New Jersey | 1.4% – 10.75% |
New Mexico | 1.5% – 5.9% |
New York | 3.9% – 10.9% |
North Carolina | 3.99% |
North Dakota | 1.95% – 2.5% |
Ohio | 2.75% |
Oklahoma | 2.5% – 4.5% |
Oregon | 4.75% – 9.9% |
Pennsylvania | 3.07% |
Rhode Island | 3.75% – 5.99% |
South Carolina | 0% – 6.2% |
Utah | 4.5% |
Vermont | 3.35% – 8.75% |
Virginia | 2% – 5.75% |
West Virginia | 2.22% – 4.82% |
Wisconsin | 3.5% – 7.65% |
State Capital Gains Taxes for 2026
Capital gains planning is central to real estate investing, especially when you’re evaluating whether a 1031 exchange is the right fit. Many states treat capital gains as ordinary income (with state-specific deductions or exclusions), while a smaller number impose no state tax on capital gains at all.
A properly structured 1031 exchange may defer state capital gains in many cases, but state conformity and reporting can vary, so it’s worth understanding your state’s baseline treatment before you plan your sale and reinvestment.
States That Do Not Tax Capital Gains in 2026
Alaska, Florida, Missouri, Nevada, New Hampshire, South Dakota, Tennessee, Texas and Wyoming.
2026 State Capital Gains Tax Rate
State | Rate |
Alabama | Up to 5% |
Arizona | Up to 2.5% |
Arkansas | Up to 3.9% |
California | Up to 13.3% |
Colorado | Up to 4.4% |
Connecticut | 6.99% |
Delaware | Up to 6.6% |
District of Columbia | Up to 10.75% |
Georgia | Up to 5.19% |
Hawaii | Up to 7.25% |
Idaho | Up to 5.3% |
Illinois | Up to 4.95% |
Indiana | 3% |
Iowa | 3.9% |
Kansas | Up to 5.58% |
Kentucky | 3.5% |
Louisiana | Up to 4.25% |
Maine | Up to 7.25% |
Maryland | Up to 6.5% |
Massachusetts | 5% for long-term capital gains Up to 9% for short-term capital gains 12% for collectibles |
Michigan | 4.25% |
Minnesota | Up to 9.85% |
Mississippi | Up to 4% |
Montana | Up to 4.1% for long-term capital gains Up to 5.65% for short-term capital gains |
Nebraska | Up to 4.55% |
New Jersey | Up to 10.75% |
New Mexico | Up to 5.9% (40% or $1,000 deduction available) |
New York | Up to 10.9% |
North Carolina | 3.99% |
North Dakota | Up to 2.5% (40% deduction available) |
Ohio | Up to 2.75% |
Oklahoma | Up to 4.5% (100% deduction available for certain gains) |
Oregon | Up to 9.9% |
Pennsylvania | 3.07% |
Rhode Island | Up to 5.99% |
South Carolina | Up to 6.4% (44% deduction available for long-term gains) |
Utah | 4.55% |
Vermont | Up to 8.75% (partial deduction available on certain long-term gains) |
Virginia | Up to 5.75% |
Washington | Up to 9.9% (real estate is exempt) |
West Virginia | Up to 4.82% |
Wisconsin | Up to 7.65% (30% - 60% deduction on certain long-term gains) |
Real Estate Transfer Taxes for 2026
Real estate transfer taxes (sometimes called deed taxes or documentary stamp taxes) are imposed by some states when property ownership changes hands. These taxes are typically calculated as a percentage of the sale price and are paid at closing, which means they can directly affect transaction costs, net proceeds, and cash required to close.
For real estate investors and parties completing a 1031 exchange, transfer taxes are especially important to account for during deal analysis and replacement property planning. While some states impose no transfer tax at all, others apply flat rates or graduated rates that vary based on price or transaction type.
States With No State-Level Real Estate Transfer Tax in 2026
The following states do not impose a state-level real estate transfer tax: Alaska, Arizona, Colorado, Idaho, Indiana, Kansas, Louisiana, Mississippi, Missouri, Montana, New Mexico, North Dakota, Oregon, Texas, Utah and Wyoming.
Note: Even in states without a state-level transfer tax, local or county transfer taxes may still apply.
State Real Estate Transfer Tax Rates in 2026
State | Rate |
Alabama | 0.1% |
Arkansas | 0.33% |
California | 0.11% |
Connecticut | 0.75% – 2.25% |
Delaware | 2.5% |
District of Columbia | 1.1% – 1.45% |
Florida | 0.7% |
Georgia | 0.1% |
Hawaii | 0.1% – 1.25% |
Illinois | 0.1% |
Iowa | 0.16% |
Kentucky | 0.1% |
Maine | 0.44% – 0.76% |
Maryland | 0.5% |
Massachusetts | 0.46% |
Michigan | 0.75% |
Minnesota | 0.33% |
Nebraska | 0.23% |
Nevada | 0.39% |
New Hampshire | 1.5% |
New Jersey | 0.4% – 1.21% |
New York | 0.4% – 0.65% |
North Carolina | 0.2% |
Ohio | 0.1% |
Oklahoma | 0.15% |
Pennsylvania | 1% |
Rhode Island | 0.75% |
South Carolina | 0.37% |
South Dakota | 0.1% |
Tennessee | 0.37% |
Vermont | 1.45% – 1.75% |
Virginia | 0.25% |
Washington | 1.1% – 3% |
West Virginia | 0.22% |
Wisconsin | 0.3% |
State Property Taxes
Property taxes are assessed at the local level but can vary significantly by state. For real estate investors, property taxes directly affect operating costs, cash flow, and long-term investment returns.
The below table includes:
Effective statewide average (as a percentage of owner-occupied housing value)
County effective rate range (lowest-to-highest county effective rates within each state)
Property Tax Rates by State
State | Effective Statewide Average | County Rate Range |
Alabama | 0.37% | 0.18% – 0.58% |
Alaska | 0.94% | 0% – 1.17% |
Arizona | 0.48% | 0.21% – 0.7% |
Arkansas | 0.56% | 0.14% – 0.76% |
California | 0.7% | 0.26% – 0.89% |
Colorado | 0.5% | 0.22% – 0.66% |
Connecticut | 1.54% | 1.17% – 1.91% |
Delaware | 0.54% | 0.31% – 0.72% |
District of Columbia | 0.6% | 0.6% |
Florida | 0.78% | 0.44% – 0.99% |
Georgia | 0.79% | 0.35% – 1.2% |
Hawaii | 0.29% | 0.22% – 0.35% |
Idaho | 0.5% | 0.31% – 0.75% |
Illinois | 1.88% | 0.83% – 2.28% |
Indiana | 0.76% | 0.45% – 0.93% |
Iowa | 1.33% | 0.78% – 1.57% |
Kansas | 1.21% | 0.9% – 1.93% |
Kentucky | 0.74% | 0.17% – 1.06% |
Louisiana | 0.55% | 0.13% – 0.85% |
Maine | 0.98% | 0.78% – 1.19% |
Maryland | 0.92% | 0.56% – 1.37% |
Massachusetts | 1% | 0.27% – 1.41% |
Michigan | 1.19% | 0.66% – 1.76% |
Minnesota | 1% | 0.56% – 1.19% |
Mississippi | 0.58% | 0.31% – 0.92% |
Missouri | 0.89% | 0.34% – 1.14% |
Montana | 0.61% | 0.2% – 1.26% |
Nebraska | 1.44% | 0.45% – 1.92% |
Nevada | 0.5% | 0.34% – 0.73% |
New Hampshire | 1.5% | 0.87% – 1.87% |
New Jersey | 1.88% | 0.93% – 2.47% |
New Mexico | 0.63% | 0.22% – 0.85% |
New York | 1.3% | 0.56% – 2.41% |
North Carolina | 0.66% | 0.22% – 0.96% |
North Dakota | 0.92% | 0.26% – 1.11% |
Ohio | 1.36% | 0.64% – 1.89% |
Oklahoma | 0.79% | 0.34% – 0.98% |
Oregon | 0.81% | 0.41% – 1.02% |
Pennsylvania | 1.26% | 0.79% – 1.62% |
Rhode Island | 1.12% | 0.86% – 1.37% |
South Carolina | 0.49% | 0.36% – 0.71% |
South Dakota | 1% | 0.2% – 1.23% |
Tennessee | 0.52% | 0.12% – 0.97% |
Texas | 1.4% | 0.22% – 1.8% |
Utah | 0.48% | 0.27% – 0.62% |
Vermont | 1.51% | 1.33% – 1.65% |
Virginia | 0.78% | 0.4% – 1.15% |
Washington | 0.75% | 0.53% – 0.96% |
West Virginia | 0.51% | 0.29% – 0.63% |
Wisconsin | 1.32% | 0.69% – 1.82% |
Wyoming | 0.53% | 0.26% – 0.72% |
*Note: The most recent data available is from the 2024 Census. This information is still useful for 2026 planning as a comparative reference, but it’s best treated as a benchmark, not a definitive for a specific county or state.
State Clawback Rules for 1031 Exchanges
While most states conform to federal 1031 exchange rules, some impose clawback provisions that require investors to track deferred gains and potentially later pay state taxes when the replacement property is sold, even if you exchanged into property outside the state.
California
California requires ongoing reporting of California-attributed deferred gain when a California property is exchanged for an out-of-state replacement property. The filing obligation continues even if subsequent exchanges are also out of state, allowing the state to track the deferred gain until it’s ultimately recognized.
Oregon
Oregon law includes a modification rule tied to deferred gain when replacement property is located outside Oregon, preserving Oregon’s ability to tax Oregon-sourced gain later when recognition occurs. Similar to California, the investor must file with the state each year.
Massachusetts
While Massachusetts does not impose an annual filing requirement, the state's clawback rules are designed to preserve its right to tax deferred gains when they become due, even if the Massachusetts property was exchanged into an out-of-state replacement property.
Montana
Montana's clawback rules also allow the state to eventually collect on any Montana-attributed deferred gain when the out-of-state replacement property is sold in a taxable transaction, although there is no annual filing requirement.
Because clawback rules can be complex and vary by state, understanding reporting obligations is especially important for investors completing multi-state exchanges.
Consider State Rules When Planning Your Next Move
State tax rates and state-level 1031 rules can meaningfully affect real estate transaction outcomes, investment returns and 1031 exchange strategies. While this guide provides a helpful planning reference, the way these rules apply depends on property location, investor residency, and transaction structure.
If you have questions about how state rules may affect your real estate transaction, investment strategy, or potential 1031 exchange, we’re here to help. Contact First American Exchange Company to discuss your situation and explore strategies aligned with your goals.