Connecticut is an expensive state to hold real estate and a moderately expensive one to sell it. Connecticut capital gains tax on real estate is simply income tax: the gain is taxed at ordinary rates up to 6.99%, the state and your town both collect a conveyance tax at closing, and property tax on the same building can run several times higher in Hartford than in Greenwich. A 1031 exchange in Connecticut defers the federal and state income tax on the gain when you reinvest through a qualified intermediary; it does not defer the conveyance tax or change the mill rate on your next building.
Reviewed by Jon Hilley, CEO & Founder of 1031 Specialists. Last reviewed September 29, 2026.
| State tax on real estate gains | Yes. Taxed as ordinary income, top rate 6.99% |
|---|---|
| Long-term capital gains treatment | No separate or reduced rate |
| Nonresident withholding at closing | None. Nonresidents report the gain on Form CT-1040NR/PY |
| Withholding form | None at closing; conveyance tax is reported on Form OP-236 |
| Transfer or conveyance tax (a 1031 does not defer it) | State 0.75% to 2.25% on residential, 1.25% on nonresidential, plus 0.25% municipal (up to 0.5% in targeted communities); seller pays |
| Clawback on out-of-state replacement property | None; no tracking form |
| Conforms to Section 1031 | Yes |
| Property tax note | Assessed at 70% of market value; mill rates vary widely by town |
Table of contents
- How much is capital gains tax on real estate in Connecticut?
- Connecticut tax on a $300,000 gain: worked example
- Connecticut has no nonresident withholding at closing
- The Connecticut conveyance tax a 1031 does not defer
- Connecticut conformity and clawback
- Mill rates: the underwriting trap in Connecticut replacement property
- Selling the LLC instead of the building
- Swap till you drop in a state with an estate tax
- Moving into or out of Connecticut
- Where Connecticut exchanges happen
- The federal rules, applied to a Connecticut closing
- Where Connecticut exchanges go wrong
- Start your Connecticut 1031 exchange
- Frequently asked questions
- Sources
How much is capital gains tax on real estate in Connecticut?
Connecticut has no separate capital gains rate. The gain is added to the rest of your income and taxed on the same brackets as wages, topping out at 6.99% for high earners (the top bracket starts at $500,000 of Connecticut taxable income for single filers and $1 million for joint filers). Depreciation recapture gets no special treatment at the state level; the whole gain is taxed at your ordinary rate. Nonresidents pay it too: gain on Connecticut real estate is Connecticut-source income, reported on Form CT-1040NR/PY.
The same sale triggers the federal stack: long-term capital gains at 15% or 20% (the 20% bracket starts at $545,500 of taxable income for single filers and $613,700 for joint filers in 2026), the 3.8% net investment income tax, and up to 25% on the depreciation you have taken. Our capital gains vs. 1031 comparison runs that number for your deal. Proposals for a separate capital gains surcharge on high earners have been introduced in recent legislative sessions, so confirm with your CPA that the law has not changed before you sell.
Connecticut tax on a $300,000 gain: worked example
Assumptions: a $300,000 long-term gain on an investment property, $100,000 of it unrecaptured Section 1250 depreciation, a seller already in the top federal bracket and Connecticut's 6.99% bracket, filing jointly.
| Tax | Math | Amount |
|---|---|---|
| Federal unrecaptured §1250 gain | 25% x $100,000 | $25,000 |
| Federal long-term capital gain | 20% x $200,000 | $40,000 |
| Net investment income tax | 3.8% x $300,000 | $11,400 |
| Federal subtotal | $76,400 | |
| Connecticut income tax | 6.99% x $300,000 | $20,970 |
| Total deferred by a full 1031 | $97,370 |
Roughly a third of the gain goes to tax in a taxable sale. The depreciation recapture calculator isolates the recapture piece, which is the part investors most often underestimate. The conveyance tax below comes on top and is not deferred.
Connecticut has no nonresident withholding at closing
Unlike New York, New Jersey or Rhode Island, Connecticut does not take an estimated tax payment from a nonresident seller at the closing table. Nothing is withheld, but the liability follows you home: a nonresident who sells in a taxable sale files Form CT-1040NR/PY and pays Connecticut tax on the gain. In an exchange, the gain is deferred on the Connecticut return just as it is on the federal return. Foreign sellers still face federal FIRPTA withholding.
The Connecticut conveyance tax a 1031 does not defer
An exchange defers tax on the gain. Connecticut's real estate conveyance tax is charged on the sale price, gain or no gain, and the seller pays it before the deed records, reported on Form OP-236.
- State tax on nonresidential property: 1.25% of the price (0.75% for unimproved land).
- State tax on residential property: 0.75% on the first $800,000, 1.25% on the portion from $800,000 to $2.5 million, and 2.25% on the portion above $2.5 million. That top tier is why a $4 million Greenwich rental house pays about $61,000 in state conveyance tax while a $4 million office building pays $50,000.
- Municipal tax: 0.25% everywhere, and up to 0.5% in designated communities including Bridgeport, Hartford, New Haven, Norwalk, Stamford and Waterbury.
On a $3 million commercial sale in Stamford that is $37,500 to the state and up to $15,000 to the city before the proceeds reach your intermediary. Conveyance tax is a selling expense, so it can be paid at closing without creating boot, but it shrinks the amount you reinvest. Set your replacement target from the net, not the contract price. There is no buyer-paid conveyance tax on the purchase side.
Connecticut conformity and clawback
Connecticut's income tax starts from federal adjusted gross income and makes no addback for gain deferred under Section 1031. If the gain is deferred on your federal return, it is deferred on your CT-1040 or CT-1040NR/PY, with no separate election and no annual tracking form of the kind California requires with FTB 3840.
- Deferred is not forgiven. When you eventually sell without exchanging, Connecticut taxes the accumulated gain if you are a resident then, wherever the final property sits.
- Entities. If the property is held in a partnership or multi-member LLC, Connecticut's pass-through entity tax, which became elective for tax years starting in 2024, affects who reports the gain and when. Decide on the election with your CPA before the relinquished property closes.
Mill rates: the underwriting trap in Connecticut replacement property
Connecticut assesses property at 70% of fair market value, and each of its 169 towns sets its own mill rate, producing the widest spread in the Northeast. Greenwich sits near the bottom, Stamford and Norwalk in the middle, and Bridgeport, New Haven and especially Hartford near the top, where rates have been several times Greenwich's. On a $2 million building, that gap can mean tens of thousands of dollars a year in property tax on the same purchase price.
Two rules for any Connecticut replacement property you identify. Pull the current mill rate from the town's tax collector, not the listing. And check when the town last revalued: Connecticut towns revalue on a five-year cycle, and a property bought the year before a revaluation can see its assessment reset within a year of your closing.
Selling the LLC instead of the building
Selling the LLC that owns the property, rather than the property itself, does not avoid Connecticut transfer tax, and for an exchanger it is worse than that. Connecticut's controlling interest transfer tax applies when more than 50% of an entity that holds Connecticut real property changes hands, at 1.11% of the property's value, filed on Form AU-330. And Section 1031 excludes partnership interests, so selling a membership interest in a multi-member LLC is not an exchange of real property at all. The exception is a single-member LLC disregarded for tax purposes, where selling 100% of the interest is treated as selling the property. Along with using a disqualified person as intermediary, this is one of the most common ways a Connecticut exchange fails before it starts.
Swap till you drop in a state with an estate tax
Many long-term exchangers plan to hold their last replacement property until death, when the basis steps up and the deferred gain disappears for income tax purposes. That works in Connecticut. What Connecticut adds is its own estate tax and gift tax. The Connecticut exemption is $15 million per person for 2026, with a 12% rate above it. For a family whose exchanged portfolio has grown past the exemption, the planning question becomes estate tax, and the tools are different: entity structures, lifetime gifting (which Connecticut also taxes above the exemption), and in some cases a change of domicile. Our swap-till-you-drop guide covers the federal side.
Moving into or out of Connecticut
Connecticut is mainly an origin state for exchange capital. The common move is out of Fairfield County or Hartford-area multifamily into Florida or Texas, where there is no state income tax on the eventual sale. Connecticut has no clawback, but residency decides the ending: if you are still a Connecticut resident when you sell the Florida property in a taxable sale, Connecticut taxes the whole gain. The no-tax-state benefit is realized only by residents of that state.
Inbound capital is mostly from New York, where investors exchange into Fairfield County multifamily to get away from rent regulation and the city's transfer and mansion taxes. If you are that New York seller, start with our New York 1031 guide for the IT-2663 and transfer taxes on the sale side. Sellers who want to stop managing property often use Delaware Statutory Trust interests, which qualify as replacement property.
Where Connecticut exchanges happen
Fairfield County carries most of the state's exchange volume and is priced off New York. Stamford's Harbor Point and downtown are the deepest institutional multifamily market in the state; Greenwich is trophy residential and boutique office; Norwalk's SoNo district is mid-priced mixed-use and multifamily; Bridgeport and Danbury are where value-add multifamily still trades at entry prices that work for smaller exchangers. Hartford has soft office demand and an active multifamily conversion market, while West Hartford and Glastonbury hold the retail premium. New Haven adds a lab and life-science market built around Yale. Along I-91 and I-95, industrial and last-mile distribution is a steady target, and the shoreline towns and Litchfield County supply 1-to-4 family rentals.
The federal rules, applied to a Connecticut closing
You have 45 days from closing to identify replacement property and 180 days to acquire it. A qualified intermediary holds the proceeds throughout. Reinvest all net proceeds in property of equal or greater value and debt, or the shortfall is taxable boot. Our 1031 exchange guides cover each rule, the 45-day identification validator checks your list, and the deadline tracker calendars both dates.
Where Connecticut exchanges go wrong
- Setting the reinvestment target from the gross sale price and coming up short after conveyance tax and closing costs.
- Underwriting a replacement property on the seller's last tax bill in a town that revalues next year.
- Selling the membership interest to dodge the conveyance tax, then discovering it is a controlling interest transfer and not an exchange.
- Letting the closing attorney draft the purchase and sale agreement without exchange language, then trying to add an assignment at the table.
- Exchanging into Florida as a Connecticut resident and expecting the 6.99% to go away.
- If the exchange does fail, missing the chance to push recognition into the next tax year; our tax-straddling guide explains how.
Start your Connecticut 1031 exchange
Engage us before the relinquished property closes, and tell your closing attorney it is an exchange before the purchase and sale agreement is drafted. We prepare the exchange agreement, assignment and notice, hold the proceeds in a segregated account under the 1031 Specialists Standard, and calendar both deadlines. Start your exchange or book a call to walk through a specific deal. Found the replacement first? Ask about a reverse exchange.
Frequently asked questions
How can I avoid capital gains tax on real estate in Connecticut?
Complete a 1031 exchange through a qualified intermediary and reinvest all net proceeds in like-kind property within 180 days. That defers federal tax and Connecticut income tax of up to 6.99%. Holding the final property until death gives heirs a stepped-up basis.
Does Connecticut have a separate capital gains tax on real estate?
No. The gain is taxed as ordinary income at Connecticut's regular rates, up to 6.99%. A 1031 exchange defers it along with the federal tax.
Does a 1031 exchange defer the Connecticut conveyance tax?
No. The conveyance tax is charged on the sale price at closing and is paid whether or not you exchange. It can be paid from the closing proceeds without creating boot, but it reduces the amount you reinvest.
Is there nonresident withholding when I sell Connecticut property?
No. Connecticut does not withhold at closing. Nonresidents still owe Connecticut tax on the gain and file Form CT-1040NR/PY, unless the gain is deferred in an exchange.
If I exchange Connecticut property into Florida, do I escape Connecticut tax?
You defer it. If you are still a Connecticut resident when you sell the Florida property in a taxable sale, Connecticut taxes the full gain. If you have become a Florida resident by then, there is no state income tax on that sale.
Can I sell my LLC instead of the property to avoid the conveyance tax?
Transferring more than 50% of an entity that owns Connecticut real estate triggers a 1.11% controlling interest transfer tax, and a partnership or multi-member LLC interest does not qualify for 1031 treatment. Only a 100% interest in a disregarded single-member LLC is treated as the property itself.
Sources
- CT DRS: Real Estate Conveyance Tax Information
- CT DRS: Real estate conveyance tax change (2019 legislation)
- CT General Assembly OLR Report 2020-R-0020: conveyance tax rates
- CT DRS: Real estate tax forms (OP-236)
- CT DRS: Controlling Interest Transfer Tax Information
- CT DRS: Estate and gift tax information
Related: New York, Massachusetts, Rhode Island, Florida and all 50 states.
This page is general information, not tax or legal advice. We act as a qualified intermediary. Connecticut rates, thresholds and mill rates change; confirm current figures with your tax advisor.
