Arkansas capital gains tax on real estate is among the lightest of any income tax state: only 50% of a net long-term capital gain is taxed, the top rate dropped to 3.7% for 2026, and net gain above $10 million is exempt altogether. That puts the effective Arkansas rate on a long-held rental near 1.85%, so a 1031 exchange in Arkansas is mostly about the federal tax, while the state's $3.30 per $1,000 real property transfer tax is due either way.
Reviewed by Jon Hilley, CEO & Founder of 1031 Specialists. Last reviewed September 29, 2026.
| State tax on real estate gains | Top individual rate 3.7% for 2026 (cut from 3.9%, retroactive to January 1, 2026). |
|---|---|
| Long-term capital gains treatment | 50% of net long-term capital gain taxed; net gain over $10 million exempt; short-term gain fully taxed. |
| Nonresident withholding at closing | No general withholding on an individual's real estate sale. Pass-through entities withhold for nonresident members. |
| Withholding form | None for individuals at closing; entities file Form AR941PT. |
| Transfer or conveyance tax (a 1031 does not defer it) | Real property transfer tax of $3.30 per $1,000 of consideration over $100. |
| Clawback on out-of-state replacement property | No state tracking form. |
| Conforms to Section 1031 | Arkansas recognizes like-kind exchanges of real property. |
Table of contents
- How much is capital gains tax on real estate in Arkansas?
- Arkansas tax on a $300,000 gain: worked example
- Nonresident withholding in Arkansas
- Arkansas real property transfer tax
- Arkansas conformity and clawback
- Large sales and the $10 million exemption
- Moving into or out of Arkansas
- Where 1031 exchanges happen in Arkansas
- The federal side of an Arkansas exchange
- Arkansas-specific mistakes
- Start your Arkansas exchange
- Frequently asked questions
- Sources
How much is capital gains tax on real estate in Arkansas?
Arkansas taxes capital gains as income, but with two breaks that matter to real estate sellers:
- 50% exclusion. Only half of your net long-term capital gain is taxable in Arkansas. Short-term gain (property held one year or less) is taxed in full.
- $10 million exemption. Under Act 1488 of 2013, net capital gain above $10,000,000 from a gain realized after January 1, 2014 is exempt from Arkansas tax.
The rate applied to the taxable half keeps falling. A 2026 special session passed Act 2, which cut the top individual rate from 3.9% to 3.7% for tax years beginning January 1, 2026. For higher earners the 3.7% rate applies to nearly all income, so the effective Arkansas rate on a long-term gain is about 1.85%. There is no local income tax.
With the state share that small, the question is mostly federal: 0%, 15% or 20% on the gain, 3.8% net investment income tax, and up to 25% on depreciation. Our capital gains vs. 1031 exchange comparison lays out both paths.
Arkansas tax on a $300,000 gain: worked example
Assumptions: a $300,000 long-term gain on an Arkansas rental, $100,000 of it unrecaptured §1250 depreciation, joint filers already in the top federal and Arkansas brackets. Arkansas taxes half the gain: $300,000 × 50% = $150,000, and $150,000 × 3.7% = $5,550.
| Tax line | Amount |
|---|---|
| Unrecaptured §1250 gain: 25% of $100,000 | $25,000 |
| Long-term capital gain: 20% of $200,000 | $40,000 |
| Net investment income tax: 3.8% of $300,000 | $11,400 |
| Federal subtotal | $76,400 |
| Arkansas income tax: 3.7% of $150,000 (50% of the gain after the exclusion) | $5,550 |
| Total tax deferred by a full 1031 exchange | $81,950 |
The Arkansas line is under 7% of the total, so skipping an exchange to "save" state tax rarely makes sense. Estimate your recapture with the depreciation recapture calculator.
Nonresident withholding in Arkansas
Arkansas does not require the title company to withhold state income tax when an individual sells real estate, so a 1031 closing needs no state exemption filing. Nonresidents still owe Arkansas tax on gain from Arkansas property and receive the same 50% exclusion.
The one withholding rule to know involves entities. An LLC, partnership or S corporation with nonresident members must withhold Arkansas tax on those members' shares of income at the highest individual rate and file Form AR941PT. If your entity sells an Arkansas property in a taxable sale, the gain can flow into that calculation; in a full exchange there is no recognized gain to withhold on. Foreign individual sellers face federal FIRPTA withholding; see foreigners selling U.S. property.
Arkansas real property transfer tax
Arkansas charges a real property transfer tax of $3.30 per $1,000 of actual consideration on deeds where the consideration exceeds $100 (Ark. Code Ann. §26-60-101 et seq.). The tax also reaches transfers of mineral rights. On an $800,000 sale that is $2,640.
Stamps are bought at recording, and who pays is set in the purchase contract, so confirm local custom with your title company. A 1031 exchange does not defer this tax: you will see it on your sale and again on the replacement deed if you buy in Arkansas.
Arkansas conformity and clawback
Arkansas recognizes like-kind exchanges of real property, so a valid exchange defers the Arkansas tax along with the federal tax. Arkansas has no form that tracks deferred gain when you buy replacement property elsewhere. If you are an Arkansas resident when the replacement is later sold, Arkansas taxes that gain, still with the 50% exclusion.
Large sales and the $10 million exemption
For very large gains, Arkansas works differently from nearly every other state. Net capital gain above $10 million is exempt, so on a $25 million gain Arkansas taxes half of the first $10 million and nothing above it. The state bill tops out near $185,000 at a 3.7% rate, while the federal tax on the full gain keeps growing.
That makes a 1031 exchange on a large Arkansas sale almost entirely a federal decision. It can also make a partial exchange attractive: taking some cash as boot costs federal tax but adds little Arkansas tax once you are past the cap. Size the trade-off with the partial 1031 boot calculator and confirm how the exemption applies to your transaction with your CPA.
Moving into or out of Arkansas
Arkansas sellers often buy replacement property in Texas or Tennessee, neither of which taxes wage or capital gain income. That removes future state tax on the replacement if you also move, but while you live in Arkansas, Arkansas taxes the eventual gain. Arkansas property stays taxable here as Arkansas-source income wherever you live.
Investors moving in from California or Oregon can buy Arkansas replacement property, but those states keep tracking the deferred gain they gave up.
Where 1031 exchanges happen in Arkansas
Northwest Arkansas, the Bentonville, Rogers, Springdale and Fayetteville corridor, is the most active exchange market, with corporate headquarters driving demand for multifamily, industrial and retail. Little Rock and Conway anchor central Arkansas with medical, government and university demand. Fort Smith and Jonesboro add industrial and single-family rental opportunities, and timberland and farmland exchanges are common statewide.
The federal side of an Arkansas exchange
The IRS clock starts at your sale: 45 days to identify replacement property in writing, 180 days to close. Your qualified intermediary holds the money the whole time. Buy equal or greater value and replace your debt to defer everything. More in our 1031 exchange guides; check your list with the 45-day identification validator.
Arkansas-specific mistakes
- Using the old 3.9% rate. The top rate is 3.7% for 2026.
- Applying the 50% exclusion to a quick flip. Short-term gain is fully taxable in Arkansas.
- Forgetting entity withholding. LLCs with nonresident members that sell outright may owe AR941PT withholding.
- Leaving transfer tax out of the replacement budget. It applies to both deeds.
- Overpaying federal tax to avoid a small state bill. At 1.85% effective, Arkansas tax is rarely the reason to skip an exchange.
Start your Arkansas exchange
Engage 1031 Specialists before your Arkansas closing so proceeds wire to us. Start your exchange online or book an intro call.
Frequently asked questions
What is the Arkansas capital gains tax rate on real estate?
Arkansas taxes 50% of a net long-term capital gain at ordinary rates, with a top rate of 3.7% for 2026, for an effective rate of about 1.85%. Net gain above $10 million is exempt, and short-term gain is fully taxed.
How can I avoid capital gains tax on real estate in Arkansas?
A 1031 exchange defers both the federal and Arkansas tax when you reinvest through a qualified intermediary within 45 and 180 days. The 50% exclusion and $10 million exemption already reduce the Arkansas share if you sell outright.
How much is the Arkansas real property transfer tax?
It is $3.30 per $1,000 of actual consideration on transfers over $100. A 1031 exchange does not defer it.
Does Arkansas withhold tax when a nonresident sells property?
Not for individual sellers. Pass-through entities must withhold on nonresident members' income at the highest rate and file Form AR941PT.
Did the Arkansas income tax rate change for 2026?
Yes. Act 2 of the 2026 special session lowered the top individual rate from 3.9% to 3.7%, retroactive to January 1, 2026.
Sources
- Arkansas General Assembly: Act 2 of 2026 (income tax reduction)
- Arkansas DFA: fiscal impact statement on SB1 (2026)
- Arkansas DFA: fiduciary return instructions (50% capital gain rule, Act 1488 of 2013)
- Arkansas DFA: real property transfer tax
- Arkansas DFA: pass-through entity withholding
- IRS: like-kind exchanges, real estate tax tips
Related: Oklahoma, Missouri, Tennessee, Louisiana, all 50 states.
General information only, not tax or legal advice. 1031 Specialists acts as a qualified intermediary; confirm the Arkansas treatment of your sale with your CPA.
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