Arkansas taxes capital gains as ordinary income — up to 3.9% — stacked on top of federal tax, so selling appreciated real estate can cost roughly ~27.7% of the gain. A 1031 exchange into a Delaware Statutory Trust lets Arkansas investors defer that combined bill and trade active landlording for passive institutional real estate.
~27.7%Est. combined tax if you sell
3.9%Top state rate on gains
5.0–7.0% (illustrative)Illustrative cap rates
How Arkansas taxes a property sale
State treatment. Taxed as ordinary income — up to 3.9%. Arkansas excludes 50% of net long-term capital gains, which lowers the effective rate below the 3.9% ordinary top rate.
Nonresident withholding. Arkansas may require nonresident withholding at closing; a qualifying 1031 exchange generally defers it. Confirm specifics with your closing agent.
Does Arkansas conform to Section 1031?
Yes — a qualifying exchange defers state tax alongside federal.
Arkansas conforms to IRC §1031, so a qualifying exchange defers Arkansas tax as well as federal tax. Arkansas excludes 50% of net long-term capital gains, which lowers the effective rate below the 3.9% ordinary top rate.
Passive replacement property with a DST
Many Arkansas owners use a Delaware Statutory Trust as replacement property — institutional real estate, professionally managed, that qualifies for 1031 treatment and can absorb both the equity and the debt from the sale.
Arkansas taxes capital gains as ordinary income, up to 3.9%, with no separate long-term rate. Combined with the federal 20% rate and the 3.8% net investment income tax, a high-bracket Arkansas seller can face roughly ~27.7% on a real estate gain. Arkansas excludes 50% of net long-term capital gains, which lowers the effective rate below the 3.9% ordinary top rate.
Does Arkansas recognize 1031 exchanges?
Yes. Arkansas conforms to IRC §1031, so a properly structured exchange defers Arkansas tax as well as federal tax.
Why use a 1031 exchange in Arkansas?
To defer the tax on a large gain (up to about ~27.7% combined) and move from active landlording into passive, professionally managed real estate while keeping your full equity invested. These are Regulation D offerings for accredited investors.