North Dakota capital gains tax on real estate is one of the lightest in the country: a top rate of 2.50%, applied after you exclude 40% of a long-term gain, for an effective 1.5%. A 1031 exchange in North Dakota defers that small state amount plus the federal tax, which is where nearly all of the money is, and there is no transfer tax or closing withholding to plan around.
Reviewed by Jon Hilley, CEO & Founder of 1031 Specialists. Last reviewed September 29, 2026.
| State tax on real estate gains | 0%, 1.95% or 2.50%; top bracket above $298,075 joint (2025) |
|---|---|
| Long-term capital gains treatment | 40% of net long-term gain excluded; effective top rate 1.5% |
| Nonresident withholding at closing | None |
| Withholding form | None; nonresidents file a North Dakota return |
| Transfer or conveyance tax (a 1031 does not defer it) | None; flat recording fees only |
| Clawback on out-of-state replacement property | None |
| Conforms to Section 1031 | Yes |
Table of contents
- How much is capital gains tax on real estate in North Dakota?
- North Dakota tax on a $300,000 gain: worked example
- How the 40% exclusion works for sellers
- Nonresident sellers: no withholding at closing
- No real estate transfer tax in North Dakota
- Conformity and clawback
- Exchanging Bakken mineral and royalty interests
- Moving into or out of North Dakota
- Where North Dakota exchanges happen
- The federal rules in brief
- Mistakes we see in North Dakota exchanges
- Start your North Dakota 1031 exchange
- Frequently asked questions
- Sources
How much is capital gains tax on real estate in North Dakota?
North Dakota has three brackets: 0%, 1.95% and 2.50%. For 2025, joint filers paid nothing on the first $80,975 of taxable income, 1.95% up to $298,075 and 2.50% above that; single filers hit 2.50% above $244,825. The thresholds are adjusted for inflation each year, so check the 2026 table when you file. There is no local income tax.
On top of the low rates, North Dakota lets you exclude 40% of a net long-term capital gain from state taxable income. Unrecaptured Section 1250 depreciation is part of the long-term gain, so it shares the exclusion; ordinary recapture on equipment or other Section 1245 property does not. The combined effect is a top effective rate of 1.5% on a long-term real estate gain (2.50% on 60% of the gain), among the lowest of any state that has an income tax.
Federal tax is the real cost: 15% or 20% on the long-term gain (20% above $613,700 of joint taxable income in 2026), up to 25% on unrecaptured Section 1250 depreciation and the 3.8% net investment income tax above $250,000 joint. Compare an outright sale with an exchange in the capital gains vs. 1031 comparison.
North Dakota tax on a $300,000 gain: worked example
Assumptions: a $300,000 long-term gain on a North Dakota investment property, $100,000 of it unrecaptured Section 1250 depreciation, married filing jointly, already in the top federal bracket and North Dakota's 2.50% bracket, with the 40% exclusion applied.
| Federal: 25% on $100,000 of unrecaptured §1250 gain | $25,000 |
|---|---|
| Federal: 20% on the remaining $200,000 | $40,000 |
| Federal: 3.8% NIIT on $300,000 | $11,400 |
| Federal subtotal | $76,400 |
| North Dakota: 2.50% x ($300,000 less 40% exclusion = $180,000) | $4,500 |
| Total tax deferred by a full 1031 exchange | $80,900 |
The state line is under 6% of the total. Test your own recapture with the depreciation recapture calculator.
How the 40% exclusion works for sellers
The exclusion is claimed on Form ND-1 and applies to the net long-term capital gain already in your federal taxable income. Three details matter for real estate sellers. First, it only applies to gain you recognize, so it plays no part in a fully deferred exchange; it matters for boot and for the eventual taxable sale of the replacement property. Second, for full-year nonresidents and part-year residents, only net long-term gain reportable to North Dakota qualifies. Third, a gain already counted in certain other ND-1 subtractions cannot be excluded twice. On boot, the federal tax is the bigger number by far. Size the boot with the partial exchange calculator.
Nonresident sellers: no withholding at closing
North Dakota does not require title companies to withhold a percentage of a nonresident individual's sale price at closing, so your full proceeds can go to your qualified intermediary. A nonresident who sells North Dakota property in a taxable sale files a North Dakota return and reports the North Dakota-source gain, with the 40% exclusion applied to that gain. Foreign sellers remain subject to federal FIRPTA withholding; see our FIRPTA guide.
No real estate transfer tax in North Dakota
North Dakota charges no state or local real estate transfer tax. The county recorder collects a flat recording fee set by NDCC 11-18-05: $20 for a document of one to six pages and $65 for longer documents. The grantee must certify on the face of the deed a statement of the full consideration paid, unless an exemption such as a family transfer applies. Nothing comes out of exchange funds for transfer tax on either side.
Conformity and clawback
North Dakota starts from federal taxable income, so Section 1031 deferral flows through to your state return with no separate election. It does not require annual reporting when you exchange into property in another state, and it does not claw back deferred gain after you move. If you later sell the replacement property in a taxable sale while a North Dakota resident, the gain is taxed here with the 40% exclusion; if you have moved away, North Dakota taxes only gain on North Dakota property.
Exchanging Bakken mineral and royalty interests
Western North Dakota has many owners of oil and gas mineral or royalty interests, often inherited. A perpetual mineral or royalty interest is generally treated as real property and can be exchanged for other real estate, such as a rental building or farmland, if it is held for investment. A term royalty that expires after a set period or volume is not treated the same way. Confirm the title and interest type first: a lease or bonus payment is not a sale. Many mineral sellers use Delaware Statutory Trust interests as replacement property to keep the income passive.
Moving into or out of North Dakota
Farm and mineral owners retiring out of North Dakota often exchange into Arizona, Texas or Florida property, or into South Dakota, which has no income tax. With no North Dakota clawback, gain deferred into property outside the state leaves North Dakota's reach once you establish residence elsewhere. Owners moving in from Minnesota or California should know their former state may still tax gain on property located there, and California's FTB 3840 follows gain deferred out of California.
Where North Dakota exchanges happen
Fargo, with West Fargo and the Moorhead side of the river, is the largest market for multifamily, industrial and retail. Bismarck and Mandan trade apartments and medical office tied to state government and healthcare. Grand Forks has student and workforce housing around the University of North Dakota and the air base. Williston, Watford City and Dickinson ride Bakken oil prices. Farmland across the Red River Valley and central plains is a steady source of land-for-land and land-for-commercial exchanges.
The federal rules in brief
After your North Dakota sale closes, identify replacement property in writing within 45 days and acquire it within 180 days. A qualified intermediary must hold the proceeds. Match or exceed the sale price and the debt paid off to defer all of the gain. Check your list with the 45-day identification validator.
Mistakes we see in North Dakota exchanges
- Deciding the exchange is not worth it because the state rate is tiny, then paying $76,400 of federal tax on a $300,000 gain.
- Trying to exchange mineral lease bonus income, or a term royalty, as though it were a sale of real property.
- Including the farmhouse you live in with the land you are exchanging.
- Buying Bakken workforce housing as replacement property without stress-testing rents at lower oil prices.
- Assuming the 40% exclusion applies to ordinary recapture on equipment sold with a farm.
Start your North Dakota 1031 exchange
Reach out before your sale closes. We prepare the exchange documents, coordinate with your North Dakota title company, hold the funds and track both deadlines. Start your exchange or book an intro call.
Frequently asked questions
How can I avoid capital gains tax on real estate in North Dakota?
A 1031 exchange through a qualified intermediary defers both the North Dakota tax and the federal tax when you reinvest in like-kind property within 180 days. If you do sell outright, the 40% long-term capital gain exclusion keeps North Dakota's tax to about 1.5% of the gain at the top rate.
What is North Dakota's capital gains tax rate?
North Dakota taxes gains as income at 0%, 1.95% or 2.50%, and excludes 40% of a net long-term capital gain. At the top bracket the effective rate on a long-term gain is 1.5%.
Does North Dakota have a real estate transfer tax?
No. North Dakota has no state or local real estate transfer tax, only flat recording fees such as $20 for a deed of up to six pages.
Is there withholding when a nonresident sells North Dakota property?
No state withholding applies at closing. A nonresident who sells without exchanging files a North Dakota return and can apply the 40% exclusion to the North Dakota-source long-term gain.
Can I exchange North Dakota mineral rights for a rental property?
Generally yes, if you sell a perpetual mineral or royalty interest held for investment. Term royalties and lease bonuses do not qualify as real property sales.
Sources
- North Dakota Office of State Tax Commissioner: Individual income tax rates
- North Dakota 2025 Individual Income Tax booklet (40% capital gain exclusion)
- North Dakota Century Code chapter 11-18 (recording fees, statement of consideration)
Related: Montana, Nebraska, Wyoming and all 50 states.
General information only, not tax or legal advice. Confirm current North Dakota brackets and your specific facts with a tax advisor.
