A 1031 exchange in Rhode Island lets you sell investment real estate and reinvest in like-kind property while deferring the tax on the gain. The federal rules apply the same way everywhere. Rhode Island adds a state tax on the gain and a nonresident withholding step at closing, and like its coastal neighbors it has a large base of out-of-state second-home owners for whom that step matters. We act as your qualified intermediary, holding the proceeds and handling the documentation so the exchange holds from sale to closing.
Table of contents
- How much is capital gains tax on real estate in Rhode Island?
- Rhode Island's nonresident withholding
- Rhode Island 1031 exchange rules and timeline
- 1031 exchanges across Rhode Island markets
- Common Rhode Island 1031 exchange mistakes
- Start your Rhode Island 1031 exchange
- Frequently asked questions
How much is capital gains tax on real estate in Rhode Island?
Rhode Island taxes the gain as ordinary income, with a top rate of about 5.99%. That sits on top of the federal tax an exchange also defers:
- Long-term capital gains at 0%, 15%, or 20%, with the 20% rate applying above $545,500 of taxable income for single filers and $613,700 for married couples filing jointly in 2026.
- The 3.8% Net Investment Income Tax above $200,000 of modified adjusted gross income for single filers, $250,000 for married couples.
- Depreciation recapture, taxed as unrecaptured Section 1250 gain at up to 25%.
- Rhode Island's rate of up to about 5.99% on the gain.
Rhode Island conforms to Section 1031, so a properly structured exchange defers both the federal and the Rhode Island tax. The full federal framework is in our main 1031 exchange guide.
Rhode Island's nonresident withholding
When a nonresident sells Rhode Island real estate, the buyer withholds from the proceeds. The seller can elect to have the withholding computed on the gain rather than the full sale price by filing Form RI 71.3, the Nonresident Election of Gain and Certificate of Withholding Due, where the rate applied is generally about 6% for individuals and 7% for corporations, so confirm the current figure. In a 1031 exchange you use that same form to certify that the sale is not subject to tax because it is a like-kind exchange, supported by your intermediary's documentation, so the withholding is not collected. Filing the RI 71.3 correctly before closing is the step that keeps your cash from being held back.
Rhode Island 1031 exchange rules and timeline
The federal deadlines govern, and they are strict:
- 45-day identification. Identify replacement property in writing within 45 days of the sale.
- 180-day closing. Close within 180 days of the sale, or by your return due date including extensions, whichever is earlier.
- No constructive receipt. Proceeds go to your qualified intermediary, never to you.
- Equal or greater value and debt. Reinvest all net proceeds and match or exceed the relinquished value and debt, or the shortfall is taxable boot.
- Same taxpayer. The entity that sold must be the entity that buys.
1031 exchanges across Rhode Island markets
Rhode Island is small, and its exchange activity divides between the capital and the coast. Providence anchors the urban market, with multifamily and commercial property and a growing presence in health care and education. The coast is the state's distinctive draw: Newport carries high-value coastal and historic property and a strong tourism base, and the South County beaches add second-home and short-term rental demand, much of it owned by nonresidents from Massachusetts, Connecticut, and New York, which is why the withholding step is common here. Warwick and the surrounding suburbs add multifamily at lower entry prices. Rhode Island property tax is relatively high and set locally, so confirm the rate for any replacement deal.
Common Rhode Island 1031 exchange mistakes
- Not certifying the exchange on Form RI 71.3, so withholding is taken from the proceeds and tied up.
- Underwriting coastal short-term rentals without accounting for local rules and seasonality.
- Taking receipt of the proceeds, or missing the 45-day identification window.
- Trading down or pulling cash out, which creates taxable boot.
Start your Rhode Island 1031 exchange
Set up your exchange before your relinquished property closes, so the RI 71.3 certification is in place and the proceeds never reach your hands. Contact our team to begin, or to talk through a specific deal.
Frequently asked questions
How much is capital gains tax on real estate in Rhode Island?
Rhode Island taxes the gain as ordinary income at up to about 5.99%, on top of federal capital gains tax.
Is there nonresident withholding when I sell Rhode Island property?
Yes. The buyer withholds from the proceeds, and the seller can compute it on the gain via Form RI 71.3. In a 1031 you certify the exemption on that form.
Does Rhode Island conform to federal 1031 rules?
Yes. A properly structured exchange defers both the federal and the Rhode Island tax.
Do I need a qualified intermediary for a Rhode Island 1031 exchange?
Yes. The intermediary must hold the proceeds and facilitate the exchange, and supports the RI 71.3 certification. Engage one before the relinquished property closes.
This page is general information, not tax or legal advice. We act as a qualified intermediary and do not provide tax or legal advice. State and federal rules and thresholds change; confirm current figures with your tax advisor.
