Tennessee has no capital gains tax on real estate for individuals: the Hall tax on investment income was repealed for tax periods beginning in 2021, and Tennessee has never taxed wages. That does not make a 1031 exchange in Tennessee pointless. It still defers the federal tax, which is $76,400 on a typical $300,000 gain, and property held in an LLC or partnership can owe Tennessee excise tax on the gain unless it is deferred.
Reviewed by Jon Hilley, CEO & Founder of 1031 Specialists. Last reviewed September 29, 2026.
| State tax on real estate gains | None for individuals. The Hall income tax was repealed for tax periods beginning January 1, 2021 |
|---|---|
| Long-term capital gains treatment | Not taxed for individuals. LLCs, LPs and corporations pay excise tax (about 6.5%) on net earnings, which can include the gain |
| Nonresident withholding at closing | None |
| Withholding form | None required by Tennessee (federal FIRPTA still applies to foreign sellers) |
| Transfer or conveyance tax (a 1031 does not defer it) | Realty transfer tax of about $0.37 per $100 of value, customarily paid by the buyer, plus a mortgage tax on new loans |
| Clawback on out-of-state replacement property | None |
| Conforms to Section 1031 | No personal income tax, so not relevant for individuals; the entity excise tax starts from federal taxable income |
| Property tax note | County and city property tax is the main recurring state-level cost on replacement property |
Table of contents
- How much is capital gains tax on real estate in Tennessee?
- Tennessee tax on a $300,000 gain: worked example
- Tennessee franchise and excise tax on LLC-owned property
- Nonresident sellers in Tennessee
- Tennessee transfer tax and mortgage tax
- Conformity and clawback
- Exchanging into Tennessee from a high-tax state
- Moving into or out of Tennessee
- Where Tennessee 1031 exchanges happen
- The federal 1031 rules Tennessee investors follow
- Tennessee 1031 exchange mistakes to avoid
- Start your Tennessee exchange
- Frequently asked questions
- Sources
How much is capital gains tax on real estate in Tennessee?
For an individual, zero. Tennessee capital gains tax on real estate does not exist at the state level, and there are no county or city income taxes either. Before 2021 the Hall tax reached interest and dividends, but it never applied to gains from selling property, and the Department of Revenue now tells taxpayers not to file Hall returns for any year beginning on or after January 1, 2021.
The federal bill is untouched, and it is the reason Tennessee investors exchange. A seller pays up to 20% on long-term gain, up to 25% on unrecaptured §1250 gain from depreciation, and the 3.8% net investment income tax above $250,000 of MAGI for joint filers. Estimate the depreciation piece with our depreciation recapture calculator.
The one state-level exception is ownership. Most Tennessee investors hold rentals in an LLC for liability reasons, and Tennessee applies its franchise and excise tax to LLCs, limited partnerships and corporations that do business in the state. That tax is covered below.
Tennessee tax on a $300,000 gain: worked example
Assumptions: a long-term gain of $300,000 on an investment property, $100,000 of it unrecaptured §1250 depreciation, a married couple filing jointly in the top federal bracket, owning the property personally (not through an entity).
| Tax line | Amount |
|---|---|
| Unrecaptured §1250 gain: 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 |
| Tennessee income tax (individual owner) | $0 |
| Total tax deferred by a full 1031 exchange | $76,400 |
If the same property sits in a Tennessee LLC that is subject to excise tax, add roughly 6.5% of the gain, about $19,500, for a total near $95,900. Whether your entity owes it, and how much after deductions, is a question for your CPA. Either way, the exchange keeps $76,400 or more working in real estate instead of going to the IRS. Compare outcomes with the capital gains vs. 1031 exchange comparison.
Tennessee franchise and excise tax on LLC-owned property
Tennessee's franchise and excise tax applies to corporations, limited partnerships, limited liability companies and business trusts organized in Tennessee or doing business here. The excise tax is based on net earnings for the year, commonly cited at 6.5%. The franchise tax is a separate levy measured by net worth, commonly cited at $0.25 per $100.
A single-member LLC that the IRS ignores for income tax is still an LLC under Tennessee law, so its sale of a building can produce excise tax even though its owner pays no personal Tennessee tax. Because the excise computation begins with federal taxable income, a gain deferred under Section 1031 generally stays out of the excise base as well. That makes the exchange more valuable for entity owners here than in most no-tax states. Some family-owned entities that hold passive investments qualify for an exemption; ask your CPA whether yours does before you sell.
The same entity has to sell and buy. If the LLC sells, the LLC takes title to the replacement property. Converting the LLC or moving title between family members mid-exchange can break the exchange.
Nonresident sellers in Tennessee
Tennessee has no nonresident withholding at closing because it has no income tax to collect. An out-of-state owner selling a Nashville rental receives full proceeds, or sends them to the qualified intermediary, without any state form.
That does not mean the gain is untaxed. The seller's home state usually taxes residents on gains from property anywhere, and Tennessee has no tax to credit against it. A Georgia or Illinois resident selling Tennessee property pays full home-state tax on the gain unless it is deferred. Foreign sellers still face federal FIRPTA withholding; see FIRPTA for foreign sellers.
Tennessee transfer tax and mortgage tax
Tennessee charges a realty transfer tax of about $0.37 per $100 of consideration or value, whichever is greater, collected by the county register of deeds when the deed records. By custom the buyer pays it, which means sellers usually escape it on the sale and pay it on the replacement purchase. On a $1.5 million replacement property that is about $5,550.
New loans add a mortgage (indebtedness) tax, also paid by the buyer, based on the loan amount. A 1031 exchange defers neither. Both are normal closing costs, so plan for them when you size your replacement budget.
Conformity and clawback
With no personal income tax, Tennessee has nothing to conform or claw back for individuals. It does not track deferred gain that follows you out of state. The clawback risk runs the other way: if you exchanged California or Oregon property into Tennessee, those states still expect their tax when you sell. California requires an annual FTB 3840 filing, and Oregon uses form OR-24. See our California and Oregon pages.
Exchanging into Tennessee from a high-tax state
Tennessee is a popular destination for replacement property because future rental income and eventual gain face no state income tax, provided you also live in a no-tax state or move here. An Illinois resident who buys a Tennessee duplex still pays Illinois tax on the rent and the gain. The savings arrive when the owner becomes a Tennessee resident.
The trade-off is property tax. Rates vary widely between counties, and reappraisals can raise assessments sharply in fast-growing areas such as Williamson and Rutherford counties. Build current and post-reappraisal taxes into your cap rate before you identify.
Moving into or out of Tennessee
Moving here from a state without a clawback, such as Illinois, generally ends the old state's claim on gain from property you exchanged before leaving. Sell a Tennessee property after moving and only the federal tax applies. Moving out of Tennessee brings you under the new state's rules: a later sale of Tennessee property is taxable at home, and a new state like Georgia or Virginia taxes all the gain, including appreciation while you lived here.
Where Tennessee 1031 exchanges happen
Nashville drives most activity: apartment owners in Davidson County, build-to-rent communities in Rutherford and Wilson counties, and short-term rentals that must meet Metro permit rules. Memphis offers higher-yield single-family portfolios and industrial space near the airport and rail yards. Knoxville and Chattanooga attract smaller multifamily and medical office. Clarksville supplies military rentals near Fort Campbell, and Gatlinburg and Pigeon Forge generate cabin rental exchanges. We do not yet have a Tennessee city guide; check whether your property qualifies.
The federal 1031 rules Tennessee investors follow
Because Tennessee adds no rules of its own, the federal timeline is the whole game. You have 45 days after closing to identify replacements in writing and 180 days to close, with no extensions. A qualified intermediary must hold the cash. Buy equal or greater value and replace your debt to defer all gain. Read the 1031 exchange guides, check your list with the 45-day identification validator and run numbers in the 1031 exchange calculator.
Tennessee 1031 exchange mistakes to avoid
- Skipping the exchange because "Tennessee has no capital gains tax." The federal tax is the big number.
- Forgetting the excise tax on LLC-owned property. A cash sale by an LLC can create a Tennessee bill that an exchange would have deferred.
- Changing the entity mid-exchange. The LLC that sells must be the taxpayer that buys.
- Underestimating property tax on the replacement. Reappraisal in growth counties can wipe out projected yield.
- Buying a short-term rental without checking local rules. Nashville permit limits can make an identified property unusable as planned.
Start your Tennessee exchange
We handle exchanges for Tennessee owners and for out-of-state investors buying here. Share your contract and title company, and we will set up the exchange before closing. Start your exchange online or book a call with our team.
Frequently asked questions
How can I avoid capital gains tax on real estate in Tennessee?
Tennessee itself does not tax an individual's real estate gain, so the goal is the federal tax. A 1031 exchange into like-kind investment property defers it; holding until death gives heirs a stepped-up basis; and a primary residence can qualify for the federal home sale exclusion.
Does Tennessee have a capital gains tax?
Not for individuals. The Hall income tax, which covered interest and dividends, was repealed for tax periods beginning January 1, 2021, and Tennessee has no wage tax. Entities such as LLCs can owe franchise and excise tax.
Do LLCs pay Tennessee tax when they sell rental property?
Often yes. Tennessee's excise tax applies to LLCs, LPs and corporations on net earnings, commonly cited at 6.5%, which can include gain on a sale. A 1031 exchange generally defers that gain for excise purposes as well.
Is there nonresident withholding when selling property in Tennessee?
No. Tennessee has no state withholding on real estate sales. Your home state may still tax the gain, and foreign sellers face federal FIRPTA withholding.
Who pays transfer tax in Tennessee, and does a 1031 exchange defer it?
By custom the buyer pays the realty transfer tax, about $0.37 per $100 of value. A 1031 exchange does not defer it, so you will pay it when you buy replacement property.
Is a 1031 exchange worth it in a no-income-tax state?
Usually. On a $300,000 gain with $100,000 of depreciation, a top-bracket couple defers about $76,400 of federal tax.
Sources
- Tennessee Department of Revenue: Hall income tax
- Tennessee Department of Revenue: franchise and excise tax
Related: 1031 exchange in Kentucky, Georgia, North Carolina, Texas and all 50 states.
This is general information about Tennessee and federal rules, not tax or legal advice. Check your facts with a CPA before you sell.
