Ohio moved to a flat 2.75% income tax on nonbusiness income for 2026, so Ohio capital gains tax on real estate is low by Midwest standards, and gain that counts as business income can be sheltered further by Ohio’s $250,000 business income deduction. Residents of certain school districts pay an extra school district income tax on the same gain. A 1031 exchange in Ohio defers the state, school district and federal tax, but not the county conveyance fee the seller pays at closing.
Reviewed by Jon Hilley, CEO & Founder of 1031 Specialists. Last reviewed September 29, 2026.
| State tax on real estate gains | Flat 2.75% on nonbusiness income above $26,050 for 2026 |
|---|---|
| Long-term capital gains treatment | No separate rate; gain that qualifies as business income gets a $250,000 deduction, then 3% |
| Nonresident withholding at closing | None for individual sellers |
| Withholding form | None required at closing |
| Transfer or conveyance tax (a 1031 does not defer it) | Conveyance fee of 1 mill statewide plus up to 3 county mills, a maximum of $4 per $1,000 (0.4%), paid by the seller |
| Clawback on out-of-state replacement property | No |
| Conforms to Section 1031 | Yes, Ohio starts from federal adjusted gross income |
| Local income tax | School district income tax in some districts (traditional base includes capital gains); municipal income taxes vary |
Table of contents
- How much is capital gains tax on real estate in Ohio?
- Ohio tax on a $300,000 gain: worked example
- Ohio school district income tax on real estate gains
- Ohio nonresident withholding: none at closing
- Ohio conveyance fee: what a 1031 does not defer
- Ohio conformity and clawback rules
- Moving into or out of Ohio
- Where 1031 exchanges happen in Ohio
- Federal 1031 rules in brief
- Common Ohio 1031 exchange mistakes
- Start your Ohio 1031 exchange
- Frequently asked questions
- Sources
How much is capital gains tax on real estate in Ohio?
Ohio’s 2025 budget replaced the graduated brackets with a flat rate starting in 2026. For tax years beginning in 2026, nonbusiness income up to $26,050 is taxed at 0% and everything above it at 2.75%. A long-term gain on a rental property you own personally is usually nonbusiness income, so for most sellers the working number is 2.75% of the gain.
Ohio also taxes business income separately. Under the Revised Code, income and gain from real property count as business income when the acquisition, rental, management and disposition of the property are integral parts of a regular trade or business. Business income gets a deduction of the first $250,000 ($125,000 for each spouse filing separately), and the rest is taxed at a flat 3%. Whether a particular sale qualifies turns on your facts, so ask your CPA before you count on it.
Depreciation recapture has no separate Ohio treatment. The unrecaptured §1250 gain the IRS taxes at up to 25% is simply part of Ohio adjusted gross income; run the federal piece with our depreciation recapture calculator.
Ohio 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, taxed as nonbusiness income, living in a district without a school income tax.
| 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 | |
| Ohio income tax | 2.75% × $300,000 | $8,250 |
| Total deferred by a full 1031 | $84,650 |
If the same gain qualified as business income and you had no other business income that year, the Ohio line would be 3% × ($300,000 − $250,000) = $1,500. A school district tax, where it applies, is extra. Either way, most of what a 1031 saves an Ohio seller is federal, so see the capital gains vs. 1031 exchange comparison for the side-by-side.
Ohio school district income tax on real estate gains
This is the Ohio feature out-of-state advisors miss. Voters in a number of Ohio school districts have approved a school district income tax, which the Ohio Department of Taxation administers. Districts choose one of two bases:
- Traditional base: taxes Ohio taxable income, which includes capital gains, so the gain on your rental property is in the base.
- Earned income base: taxes only wages and self-employment income and excludes capital gains.
The tax is based on where you live, not where the property is, and applies to residents of the district. If you live in a traditional-base district, a taxable sale adds the district rate on top of the state tax; a 1031 exchange defers it along with everything else. Look up your district before you estimate the cost of selling outright.
Municipal income taxes are a separate layer. Ohio cities tax wages and business net profits, and whether a gain on rental property is reached depends on the city’s ordinance and how your ownership is set up, so confirm with your city tax office.
Ohio nonresident withholding: none at closing
Ohio does not require withholding from an individual nonresident who sells Ohio real estate. The title agent collects the conveyance fee, but no state income tax is held back. The tax is still owed: gain on Ohio real property is Ohio-source income, so a nonresident who sells without an exchange files an Ohio return and pays the 2.75% rate (or the business income rate, if it qualifies). Nonresidents do not owe the school district tax, which is residence-based.
Foreign sellers still face federal FIRPTA withholding; see foreigners selling US property.
Ohio conveyance fee: what a 1031 does not defer
Ohio calls its transfer tax the real property conveyance fee. A mandatory 1 mill ($1 per $1,000 of value) applies in all 88 counties, and counties may add a permissive fee of up to 3 more mills, for a maximum of 4 mills, or $4 per $1,000. The seller pays it when the deed is presented to the county auditor.
On a $2,000,000 Columbus-area apartment sale in a county charging the full 4 mills, the fee is $8,000. A 1031 does not defer it because it is a transfer fee, not an income tax. It is paid at closing as a selling expense and reduces the net proceeds you carry into the replacement property.
Ohio conformity and clawback rules
Ohio begins its income tax with federal adjusted gross income, so a gain deferred under Section 1031 is also deferred for Ohio and for school district tax. Ohio has no clawback. If you exchange an Ohio property for one in Tennessee or Florida and later move there, Ohio does not require an annual report or tax the deferred gain when you eventually sell as a nonresident.
Any boot, meaning cash taken out or debt not replaced, is taxable in the year of the exchange at the Ohio rate that applies to it.
Moving into or out of Ohio
Residents are taxed on all income; nonresidents only on Ohio-source income, which includes gain on Ohio real estate. Ohio investors who retire often exchange into no-income-tax states such as Florida or Tennessee; with no clawback, the Ohio deferral simply ends when you leave. Cross-border exchanges are common along the Cincinnati and Toledo edges, into Kentucky and Michigan, and into Pennsylvania from the Youngstown area.
If you move to Ohio holding a replacement property acquired in a clawback state such as California, that state can still tax the gain it deferred when you sell.
Where 1031 exchanges happen in Ohio
Columbus is Ohio’s fastest-growing market, with new data center and manufacturing investment around Licking County pushing demand for industrial, multifamily and single-tenant net lease property. Cleveland and its suburbs offer higher cap rates in multifamily and medical office; see our page on a 1031 exchange in Cleveland. Cincinnati, which shares a metro with northern Kentucky, trades logistics, retail and apartments; read about a 1031 exchange in Cincinnati. Dayton, Akron and Toledo round out a steady market for small-balance investors who trade up from single-family rentals.
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 Ohio 1031 exchange mistakes
- Ignoring the school district tax. Selling outright while living in a traditional-base district costs more than the state rate alone.
- Assuming business income treatment. The $250,000 deduction only applies if the property was part of a regular trade or business; a passive rental may not qualify.
- Using a 2025 bracket table. For 2026 the top rate is 2.75% on nonbusiness income, not the 3.125% or 3.5% on older charts.
- Forgetting the conveyance fee in net proceeds. Up to 0.4% leaves the closing whether or not you exchange.
- Changing the owning entity. An Ohio LLC sale followed by a purchase in the members’ personal names breaks the exchange; the same taxpayer must sell and buy.
Start your Ohio 1031 exchange
Contact us before you sign closing documents so the title agent can wire proceeds directly to your qualified intermediary account. Start your exchange, schedule an intro call, or call (631) 438-1031. We can talk through identification strategy and a reverse exchange if you find the replacement first.
Frequently asked questions
What is the Ohio capital gains tax rate on real estate in 2026?
Ohio has no separate capital gains rate. For 2026, nonbusiness income above $26,050 is taxed at a flat 2.75%, so most rental property gains are taxed at 2.75%. Gain that qualifies as business income gets a $250,000 deduction and is taxed at 3% above that.
How can I avoid capital gains tax on real estate in Ohio?
A 1031 exchange defers Ohio income tax, any school district income tax and federal tax when you reinvest all proceeds in like-kind investment property through a qualified intermediary within 45 and 180 days. Holding property until death, which gives heirs a stepped-up basis, is the other main route.
Does Ohio withhold tax when a nonresident sells real estate?
No. Ohio does not require withholding from individual nonresident sellers at closing, but the gain is Ohio-source income and a nonresident must file an Ohio return if the sale is taxable.
What is the Ohio conveyance fee and does a 1031 defer it?
The conveyance fee is 1 mill statewide plus up to 3 mills set by the county, a maximum of $4 per $1,000 of value, and the seller pays it. A 1031 exchange does not defer it.
Does the Ohio school district income tax apply to capital gains?
It does in districts that use the traditional base, which taxes Ohio taxable income including capital gains. Earned-income-base districts exclude capital gains. The tax applies to residents of the district.
Does Ohio have a 1031 clawback if I buy out of state?
No. Ohio does not track deferred gain after you exchange into another state, so if you later sell that property as a nonresident, Ohio does not tax the gain.
Sources
- Ohio Revised Code 5747.02: income tax rates
- Ohio Revised Code 5747.01: business income and deduction
- Ohio Department of Taxation: real property conveyance fee
- Ohio Department of Taxation: school district income tax
Related: Michigan, Indiana, Pennsylvania, Kentucky and all 50 states.
This page is general information, not tax or legal advice. Ohio rates and local taxes change, so confirm your situation with an Ohio tax professional.
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