Indiana capital gains tax on real estate has two layers: the state's flat 2.95% for 2026, and a county income tax that residents pay based on where they live, from 0.5% in Porter County to 3% in Randolph County. Together with federal tax, a Marion County investor can owe about $91,310 on a $300,000 gain, and a 1031 exchange in Indiana defers the federal, state and county portions alike. The state has no transfer tax, so closings cost little beyond a sales disclosure fee.
Reviewed by Jon Hilley, CEO & Founder of 1031 Specialists. Last reviewed September 29, 2026.
| State tax on real estate gains | Flat 2.95% for 2026, scheduled to fall to 2.9% in 2027 |
|---|---|
| Long-term capital gains treatment | No preference; gains are taxed as adjusted gross income at the flat rate |
| Nonresident withholding at closing | None for individual sellers |
| Withholding form | None at closing; nonresidents report Indiana-source gain on Form IT-40PNR |
| Transfer or conveyance tax (a 1031 does not defer it) | None. A sales disclosure form (State Form 46021) is filed with a county auditor fee |
| Clawback on out-of-state replacement property | None |
| Conforms to Section 1031 | Yes, Indiana starts from federal adjusted gross income |
| Local income tax | County income tax on residents, 0.5% to 3% (Marion 2.02%, Hamilton 1.1%, Allen 1.59%, rates effective October 1, 2026) |
Table of contents
- How much is capital gains tax on real estate in Indiana?
- Indiana tax on a $300,000 gain: worked example
- Indiana county tax and the January 1 rule
- Does Indiana withhold tax when a nonresident sells?
- Indiana transfer taxes: none, just a sales disclosure
- Indiana conformity and clawback rules
- Moving into or out of Indiana
- Where Indiana 1031 exchanges happen
- Federal 1031 rules that apply in Indiana
- Common Indiana 1031 exchange mistakes
- Start your Indiana 1031 exchange
- Frequently asked questions
- Sources
How much is capital gains tax on real estate in Indiana?
The Indiana Department of Revenue sets the individual adjusted gross income tax rate at 2.95% for 2026, down from 3% in 2025, with a further step to 2.9% in 2027. There is no separate capital gains rate and no exclusion for long-term gains, so the full gain, including depreciation recapture, is taxed at 2.95%.
The county tax is what makes Indiana different from most flat-tax states. Every county levies a local income tax, and an Indiana resident pays the rate of the county where they lived on January 1 of the tax year. It applies to the same income base as the state tax, so a capital gain is taxed at both. Selected rates effective October 1, 2026:
| County | 2026 rate |
|---|---|
| Marion (Indianapolis) | 2.02% |
| Monroe (Bloomington) | 2.14% |
| St. Joseph (South Bend) | 1.75% |
| Allen (Fort Wayne) | 1.59% |
| Lake (Gary, Hammond) | 1.50% |
| Tippecanoe (Lafayette) | 1.28% |
| Vanderburgh (Evansville) | 1.25% |
| Hamilton (Carmel, Fishers) | 1.10% |
| Highest: Randolph | 3.00% |
| Lowest: Porter | 0.50% |
Counties can change rates in January and October, so check the Departmental Notice 1 chart for the year of your sale. Federally, unrecaptured Section 1250 gain is taxed at up to 25%; estimate it with the depreciation recapture calculator.
Indiana tax on a $300,000 gain: worked example
Assumptions: a long-term gain of $300,000 on an Indiana rental, $100,000 of it unrecaptured Section 1250 depreciation, a married couple filing jointly in the top federal bracket. Indiana's rate is flat, so the state line is simply 2.95%. The county line uses Marion County and depends on where you live on January 1.
| Line | Math | Tax |
|---|---|---|
| Unrecaptured §1250 gain (depreciation) | 25% × $100,000 | $25,000 |
| Remaining long-term gain | 20% × $200,000 | $40,000 |
| Net investment income tax | 3.8% × $300,000 | $11,400 |
| Federal subtotal | $76,400 | |
| Indiana income tax | 2.95% × $300,000 | $8,850 |
| County income tax (Marion County resident; varies by county) | 2.02% × $300,000 | $6,060 |
| Total tax a full 1031 exchange defers | $91,310 |
A Hamilton County seller would owe $3,300 of county tax instead of $6,060, for a total of $88,550. A nonresident generally owes no county tax on the sale unless their principal place of work is in Indiana. See the cost of selling outright on the capital gains vs. 1031 exchange comparison.
Indiana county tax and the January 1 rule
Because the county rate follows your residence on January 1, a move within Indiana can change the county tax on a sale later that year. A seller who lived in Monroe County on January 1 and moved to Hamilton County in March still pays Monroe's 2.14% on a sale closed in November. For a large taxable sale, or a partial exchange with significant boot, it can be worth knowing which county will claim the gain before you pick a closing date.
Nonresidents follow a different test. The county tax applies to a nonresident only if they had their principal place of work or business in an Indiana county on January 1. An out-of-state owner of an Indianapolis rental with no Indiana job pays the 2.95% state tax on the gain but usually no county tax.
Does Indiana withhold tax when a nonresident sells?
No. Indiana has no real estate withholding at closing for individual sellers. The title company sends the full proceeds to your qualified intermediary, and there is no state form to exempt a 1031 exchange.
Nonresidents still owe Indiana tax on gain from Indiana real property and report it on Form IT-40PNR. If the exchange succeeds, there is nothing to report as income for Indiana; if it fails or produces boot, the taxable part is Indiana-source. Foreign sellers remain subject to federal FIRPTA withholding; see our FIRPTA guide.
Indiana transfer taxes: none, just a sales disclosure
Indiana does not tax real estate transfers at the state, county or city level. Instead, most sales require a Sales Disclosure Form, State Form 46021, filed with the county auditor so assessors have accurate sale prices. The Department of Local Government Finance raised the filing fee from $10 to $20 beginning July 1, 2021. Beyond that and ordinary recording fees, there is no stamp to buy on either the sale or the replacement purchase.
That keeps the cost of an exchange low compared with neighboring Illinois, where a Chicago sale and repurchase can trigger five-figure transfer taxes. Remember that the 1031 exchange defers income tax only; closing costs are paid either way.
Indiana conformity and clawback rules
Indiana computes adjusted gross income starting from the federal figure, so gain deferred under Section 1031 is deferred for the state and county taxes too. Indiana has no clawback: it does not require an annual filing on out-of-state replacement property, and it does not follow the deferred gain once you leave. If you stay an Indiana resident and later sell the replacement in a taxable sale, the state and county taxes apply then.
Moving into or out of Indiana
Indiana draws many investors from Illinois, where the flat rate is 4.95% and Chicago transfer taxes are steep. Exchanging a Chicago two-flat into Northwest Indiana or Indianapolis property lowers both the future income tax and the closing costs. If you move to Indiana as well, a later sale of the Indiana replacement is taxed at 2.95% plus your county rate.
Going the other way, Indiana investors often exchange into Florida or Tennessee before retiring there. Indiana has no clawback, so once you are a nonresident, a sale of property outside Indiana is outside Indiana tax. Ohio and Kentucky neighbors should note that Indiana still taxes nonresidents on Indiana-source gain.
Where Indiana 1031 exchanges happen
- Indianapolis. Industrial and distribution space along I-70 and I-65 near the airport, suburban multifamily in Hamilton and Hendricks counties, and net-leased retail.
- South Bend and Mishawaka. Student and workforce housing near Notre Dame and a growing industrial base; see our guide to a 1031 exchange in South Bend and Mishawaka.
- Northwest Indiana. Lake and Porter counties, where Chicago-area investors buy logistics and multifamily. Porter's 0.5% county rate is the lowest in the state.
- Fort Wayne, Evansville and Bloomington. Small multifamily, student housing near Indiana University, and medical office.
- Farmland. Central and northern Indiana cropland regularly trades through exchanges.
Federal 1031 rules that apply in Indiana
Identify replacement property in writing within 45 days of closing and complete the purchase within 180 days. The proceeds must sit with a qualified intermediary, never in your account. Reinvest at least the net sale price and replace any debt paid off to avoid taxable boot. Check your list with the 45-day identification validator, run numbers in the 1031 exchange calculator, and see our 1031 exchange guides.
Common Indiana 1031 exchange mistakes
- Leaving out the county tax. A 2% county rate adds two-thirds to the state tax. Model both.
- Ignoring the January 1 residence rule. A mid-year move within Indiana does not change the county that taxes that year's sale.
- Treating the low rate as a reason not to exchange. The state and county layers are small next to the federal $76,400 on a $300,000 gain.
- Missing the sales disclosure form. The county auditor will not process the deed without State Form 46021, which can delay the closing and squeeze your 45-day window.
- Using a relative or your agent as intermediary. People who have acted as your agent in the past two years are disqualified; see who cannot serve.
Start your Indiana 1031 exchange
Set up the exchange before your sale closes. Start your exchange and we will coordinate the exchange documents with your title company, or schedule an intro call to review the state, county and federal tax on your Indiana sale.
Frequently asked questions
How can I avoid capital gains tax on real estate in Indiana?
A 1031 exchange into like-kind investment property defers the federal tax, Indiana's 2.95% and your county income tax. Holding property until death can eliminate the deferred gain through a stepped-up basis, and retiring to a no-tax state before a later taxable sale of out-of-state property removes Indiana from the picture.
What is the Indiana capital gains tax rate in 2026?
Indiana taxes capital gains as ordinary income at a flat 2.95% for 2026, plus the county income tax of the county where you lived on January 1, which ranges from 0.5% to 3%.
Does Indiana have a real estate transfer tax?
No. Indiana has no state or local transfer tax. Sellers and buyers file a Sales Disclosure Form, State Form 46021, with the county auditor, which carries a filing fee.
Does Indiana withhold tax from nonresident sellers at closing?
No. There is no Indiana real estate withholding for individual sellers. Nonresidents report Indiana-source gain on Form IT-40PNR.
Do nonresidents pay Indiana county tax on a property sale?
Generally not, unless the nonresident's principal place of work or business was in an Indiana county on January 1 of that year. They still owe the 2.95% state tax on Indiana-source gain.
Is the Indiana rate going down again?
Yes. The Indiana Department of Revenue lists the individual rate at 2.95% for 2026 and 2.9% for 2027.
Sources
- Indiana Department of Revenue: rates, fees and penalties
- Indiana Department of Revenue: Departmental Notice 1, county tax rates
- Indiana DLGF: sales disclosure form instructions
- Indiana DLGF: memo on sales disclosure fee change
Related: Illinois, Ohio, Kentucky, Michigan, and all 50 states.
General information only, not tax or legal advice. County rates change during the year, so confirm the numbers for your sale with a tax professional.
