A 1031 exchange in Tennessee lets real estate investors sell an investment property and reinvest in like-kind property while deferring the tax on the gain. The exchange rules are federal and identical everywhere. What sets Tennessee apart is that there is no state income tax, so the only tax a Tennessee exchange defers is federal, and that it sits in some of the strongest growth and logistics markets in the South. We act as your qualified intermediary, holding the proceeds and handling the documentation so the exchange stays valid from sale to closing.
Table of contents
- Is there a capital gains tax on real estate in Tennessee?
- Tennessee 1031 exchange rules and timeline
- 1031 exchanges across Tennessee markets
- Common Tennessee 1031 exchange mistakes
- Start your Tennessee 1031 exchange
- Frequently asked questions
Is there a capital gains tax on real estate in Tennessee?
No. Tennessee has no state income tax. The Hall tax, which once applied to interest and dividends, was fully repealed, so there is no state capital gains tax on a property sale and no state withholding at closing, for residents and non-residents alike. The tax you defer in a Tennessee 1031 is entirely federal:
- 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%.
A properly structured Tennessee exchange defers all of it. The full federal framework, the 45-day and 180-day deadlines and the qualified intermediary requirement, is in our main 1031 exchange guide.
Tennessee 1031 exchange rules and timeline
The federal rules govern, and the deadlines 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.
Tennessee charges a small realty transfer tax on the conveyance, which is a transaction cost on the sale rather than an income tax, and is not affected by a 1031.
1031 exchanges across Tennessee markets
Tennessee's exchange activity clusters around three distinct stories. Nashville has been one of the hottest growth markets in the country, with strong multifamily, commercial, and health care real estate, a large entertainment and corporate base, and sustained in-migration. Memphis is a logistics powerhouse, home to the FedEx world hub and one of the busiest air cargo airports anywhere, which has built a deep distribution and industrial market along the Mississippi that frequently anchors exchanges. Chattanooga and Knoxville add manufacturing and commercial demand, with Chattanooga in particular drawing automotive and industrial investment. Franklin and the suburbs around Nashville carry strong corporate and multifamily activity. Tennessee property tax is low to moderate and set locally, which supports replacement-property yields, though you should confirm the rate for any specific deal.
Common Tennessee 1031 exchange mistakes
- Assuming no state tax means no transaction costs. The realty transfer tax still applies to the sale, separate from income tax.
- Taking receipt of the proceeds, even briefly, which disqualifies the exchange.
- Missing the 45-day identification window.
- Trading down or pulling cash out, which creates taxable boot.
Start your Tennessee 1031 exchange
Set up your exchange before your relinquished property closes, so the proceeds never reach your hands and the 45-day and 180-day clocks start clean. Contact our team to begin, or to talk through a specific deal.
Frequently asked questions
Does Tennessee have a capital gains tax on real estate?
No. Tennessee has no state income tax, and the former Hall tax on interest and dividends has been repealed, so there is no state capital gains tax and no state withholding on a sale. Federal capital gains tax still applies.
Do I still pay federal tax on a Tennessee 1031?
A 1031 defers federal capital gains, the Net Investment Income Tax, and depreciation recapture. It does not eliminate them; the deferred liability carries into the replacement property's basis.
Can I do a 1031 exchange into Tennessee from another state?
Yes. Section 1031 allows reinvesting anywhere in the US. Tennessee adds no state tax on future income or the eventual sale, though your origin state may still reach the gain that accrued there on a later taxable sale.
Do I need a qualified intermediary for a Tennessee 1031 exchange?
Yes. The intermediary must hold the proceeds and facilitate the exchange. 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. Federal rules and thresholds change; confirm current figures with your tax advisor.
