Mississippi capital gains tax on real estate dropped to 4% for 2026 on taxable income above $10,000, and the rate is scheduled to fall again in 2027. The detail that trips up sellers is at closing: when a nonresident sells Mississippi property for more than $100,000, state law requires 5% of the amount realized to be withheld unless an affidavit shows a smaller recognized gain. A 1031 exchange in Mississippi defers the state and federal tax, and the affidavit is how you keep an exchange from having cash withheld.
Reviewed by Jon Hilley, CEO & Founder of 1031 Specialists. Last reviewed September 29, 2026.
| State tax on real estate gains | 0% on the first $10,000 of taxable income, 4% above that for 2026; 3.75% scheduled for 2027 |
|---|---|
| Long-term capital gains treatment | Taxed as ordinary income; no separate rate for real estate gains |
| Nonresident withholding at closing | 5% of the amount realized on sales over $100,000, or tax on the recognized gain with an affidavit |
| Withholding form | Form 89-386, affidavit for withholding on sale of real estate by a nonresident |
| Transfer or conveyance tax (a 1031 does not defer it) | No state transfer tax; only recording fees |
| Clawback on out-of-state replacement property | No |
| Conforms to Section 1031 | Yes |
Table of contents
- How much is capital gains tax on real estate in Mississippi?
- Mississippi tax on a $300,000 gain: worked example
- Mississippi nonresident withholding and how a 1031 affects it
- Mississippi transfer taxes: none
- Should you wait for Mississippi’s lower rate?
- Mississippi conformity and clawback rules
- Moving into or out of Mississippi
- Where 1031 exchanges happen in Mississippi
- Federal 1031 rules in brief
- Common Mississippi 1031 exchange mistakes
- Start your Mississippi 1031 exchange
- Frequently asked questions
- Sources
How much is capital gains tax on real estate in Mississippi?
Mississippi taxes capital gains as ordinary income. The Department of Revenue lists the rates as 0% on the first $10,000 of taxable income and 4.4% above that for 2025, falling to 4% for 2026 and 3.75% for 2027. The 2025 law that set these cuts continues stepping the rate down in later years, with further reductions tied to revenue targets.
There is no separate treatment for depreciation recapture: the unrecaptured §1250 portion of your gain is simply income taxed at 4%. Our depreciation recapture calculator handles the federal side, where that portion is taxed at up to 25%.
Mississippi tax on a $300,000 gain: worked example
Assumptions: a $300,000 long-term gain on an investment property, $100,000 of it unrecaptured §1250 depreciation, a married couple filing jointly already in the top federal bracket and past the $10,000 zero-rate band in Mississippi.
| Line | Math | Tax |
|---|---|---|
| Federal unrecaptured §1250 gain | 25% × $100,000 | $25,000 |
| Federal long-term capital gain | 20% × $200,000 | $40,000 |
| Net investment income tax | 3.8% × $300,000 | $11,400 |
| Federal subtotal | $76,400 | |
| Mississippi income tax | 4% × $300,000 | $12,000 |
| Total deferred by a full 1031 | $88,400 |
Federal tax is 86% of the total. If you are weighing a cash sale against an exchange, run your numbers in the capital gains vs. 1031 exchange comparison.
Mississippi nonresident withholding and how a 1031 affects it
Under Mississippi Code Section 27-7-308, when a nonresident sells Mississippi real property with gross proceeds over $100,000, 5% of the amount realized is withheld from the proceeds at closing and paid to the Department of Revenue. The withholding never exceeds the net proceeds otherwise payable to the seller. It is a prepayment credited on your Mississippi nonresident return, not an extra tax.
The statute gives two ways to reduce it. First, the seller can sign an affidavit under penalty of perjury stating the gain that will actually be recognized, and withholding is then figured on that gain instead of on the full price. The Department’s Form 89-386 is that affidavit. Second, the withholding rule is written for sales that are not an exchange of property. In a properly documented 1031 exchange, the recognized gain is zero unless you take boot, so the affidavit, backed by your exchange agreement with the qualified intermediary, should show no gain to withhold on. Get the affidavit to the closing attorney before closing day; after the money is withheld, the only way back is a refund on your return.
Foreign sellers are also subject to federal FIRPTA withholding; see foreigners selling US property.
Mississippi transfer taxes: none
Mississippi does not charge a state real estate transfer tax, deed stamp or conveyance fee, and counties do not add one. The chancery clerk charges ordinary recording fees for the deed and any deed of trust. That is a real advantage over neighbors and over states where a 1031 cannot touch a 1% to 2% transfer tax: in Mississippi, the closing costs a 1031 cannot defer are limited to commissions, title and recording.
Should you wait for Mississippi’s lower rate?
Because the rate falls from 4% in 2026 to 3.75% in 2027, some sellers ask whether to delay a cash sale. On a $300,000 gain the difference is $750. That is small next to the $76,400 federal bill, so timing rarely makes sense for the state tax alone. A 1031 exchange sidesteps the question: when you eventually sell the replacement property, the gain is taxed at whatever lower Mississippi rate applies then, or not at all if you have moved out of state.
Mississippi conformity and clawback rules
Mississippi follows Section 1031, so gain deferred federally is deferred for Mississippi. There is no clawback. A Mississippi resident who exchanges into property in Tennessee or Texas is not required to file annual reports, and Mississippi does not tax the deferred gain on a later sale after you become a nonresident.
Moving into or out of Mississippi
Many owners of DeSoto County rentals live across the line in Memphis. As Tennessee residents they owe no home-state income tax, but gain on Mississippi property is Mississippi-source income, which is exactly who the 5% withholding targets. Gulf Coast owners often live in Louisiana or Alabama and face the same rule. Mississippi residents who exchange into a no-income-tax state such as Texas or Florida and later move there leave the deferred gain behind, since Mississippi has no clawback.
Where 1031 exchanges happen in Mississippi
DeSoto County, including Southaven, Olive Branch and Horn Lake, is the fastest-growing market, with logistics warehouses serving Memphis and new multifamily. Metro Jackson, including Madison and Rankin counties, carries most commercial and medical office trades. The Gulf Coast from Bay St. Louis to Ocean Springs mixes hospitality, short-term rentals and retail, while Hattiesburg, Tupelo, Oxford and Starkville add student housing and single-tenant net-lease deals.
Federal 1031 rules in brief
Identify replacement property in writing within 45 days of your sale and close within 180 days (or by your return due date with extensions, if earlier). A qualified intermediary must hold the proceeds from closing to closing. To defer all of the tax, buy replacement property of equal or greater value and replace the debt you pay off, with new debt or added cash. Our 1031 exchange guides cover the details, the 45-day identification validator checks your list, and the boot calculator shows what a partial exchange costs.
Common Mississippi 1031 exchange mistakes
- No affidavit at closing. A nonresident without a signed affidavit can have 5% of the price withheld, tying up exchange funds until a refund.
- Assuming there is no state tax because the rate is falling. The rate is 4% for 2026, not zero.
- Taking boot without adjusting the affidavit. Cash taken out is recognized gain and should be stated on the affidavit.
- Treating a Gulf Coast condo used by family as investment property. Personal-use vacation property may not qualify; see does my property qualify.
Start your Mississippi 1031 exchange
Contact us as soon as you have a buyer so we can prepare the exchange agreement your closing attorney needs for the affidavit. Start your exchange, book an intro call, or call (631) 438-1031.
Frequently asked questions
How much is capital gains tax on real estate in Mississippi?
Mississippi taxes gains as ordinary income: 0% on the first $10,000 of taxable income and 4% above that for 2026, dropping to 3.75% for 2027. Federal capital gains tax, recapture and the 3.8% net investment income tax apply on top.
How can I avoid capital gains tax on real estate in Mississippi?
A 1031 exchange defers Mississippi and federal tax on investment property when you reinvest all proceeds through a qualified intermediary within 45 and 180 days. Nonresidents should also file the withholding affidavit so no tax is held back at closing.
Does Mississippi withhold tax when a nonresident sells property?
Yes. For nonresident sales with gross proceeds over $100,000, 5% of the amount realized is withheld unless the seller provides an affidavit, Form 89-386, stating the recognized gain, in which case withholding is based on that gain.
Does a 1031 exchange stop Mississippi nonresident withholding?
It should, if documented. The withholding rule covers sales that are not exchanges, and in a full 1031 the recognized gain is zero, so the affidavit backed by your exchange agreement should show nothing to withhold. Any boot is taxable gain.
Does Mississippi have a real estate transfer tax?
No. Mississippi has no state or county transfer tax on deeds, only recording fees charged by the chancery clerk.
Sources
- Mississippi DOR: individual income tax rates
- Mississippi Legislature: SB 2589 (2015) amending Section 27-7-308
- Mississippi DOR: Form 89-386 nonresident real estate withholding affidavit
- Mississippi DOR: withholding tax forms
Related: Tennessee, Louisiana, Alabama, Arkansas and all 50 states.
This page is general information, not tax or legal advice. Mississippi rates are changing each year, so confirm your numbers with a Mississippi CPA or closing attorney.
