North Dakota taxes capital gains as ordinary income — up to 2.5% — stacked on top of federal tax, so selling appreciated real estate can cost roughly ~26.3% of the gain. A 1031 exchange into a Delaware Statutory Trust lets North Dakota investors defer that combined bill and trade active landlording for passive institutional real estate.
~26.3%Est. combined tax if you sell
2.5%Top state rate on gains
5.0–7.0% (illustrative)Illustrative cap rates
How North Dakota taxes a property sale
State treatment. Taxed as ordinary income — up to 2.5%. North Dakota excludes 40% of net long-term capital gains, lowering the effective rate below 2.5%.
Nonresident withholding. North Dakota may require nonresident withholding at closing; a qualifying 1031 exchange generally defers it. Confirm specifics with your closing agent.
Does North Dakota conform to Section 1031?
Yes — a qualifying exchange defers state tax alongside federal.
North Dakota conforms to IRC §1031, so a qualifying exchange defers North Dakota tax as well as federal tax. North Dakota excludes 40% of net long-term capital gains, lowering the effective rate below 2.5%.
Passive replacement property with a DST
Many North Dakota 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.
What is the capital gains tax rate in North Dakota?
North Dakota taxes capital gains as ordinary income, up to 2.5%, with no separate long-term rate. Combined with the federal 20% rate and the 3.8% net investment income tax, a high-bracket North Dakota seller can face roughly ~26.3% on a real estate gain. North Dakota excludes 40% of net long-term capital gains, lowering the effective rate below 2.5%.
Does North Dakota recognize 1031 exchanges?
Yes. North Dakota conforms to IRC §1031, so a properly structured exchange defers North Dakota tax as well as federal tax.
Why use a 1031 exchange in North Dakota?
To defer the tax on a large gain (up to about ~26.3% 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.