Virginia capital gains tax on real estate is simple and blunt: gains are ordinary income, and the 5.75% top rate starts at just $17,000 of taxable income, so almost every dollar of a property gain is taxed at 5.75%. A 1031 exchange in Virginia defers that state tax along with the federal tax, but it does nothing about the grantor tax and Northern Virginia regional fees the seller pays when the deed records.
Reviewed by Jon Hilley, CEO & Founder of 1031 Specialists. Last reviewed September 29, 2026.
| State tax on real estate gains | 5.75% on taxable income over $17,000 (2%, 3% and 5% below that) |
|---|---|
| Long-term capital gains treatment | No reduced rate; gains are taxed as ordinary income |
| Nonresident withholding at closing | None. Nonresident sellers are reported to Virginia Tax instead and file a nonresident return |
| Withholding form | No withholding form; Form R-5 registration (R-5P for entities, R-5E for sales exempt from income tax) |
| Transfer or conveyance tax (a 1031 does not defer it) | Seller: grantor tax of $0.50 per $500 plus $0.10 per $100 regional fees in Northern Virginia. Buyer: state recordation tax $0.25 per $100 plus a local tax equal to one-third of it |
| Clawback on out-of-state replacement property | None |
| Conforms to Section 1031 | Yes. Fixed-date conformity to the Internal Revenue Code as of December 31, 2025, with bonus depreciation decoupled |
Table of contents
- How much is capital gains tax on real estate in Virginia?
- Virginia tax on a $300,000 gain: worked example
- Why your Virginia gain may differ from your federal gain
- Nonresident sellers: registration, not withholding
- Virginia grantor tax, recordation tax and regional fees
- Virginia conformity and clawback
- Moving into or out of Virginia
- Where Virginia 1031 exchanges happen
- Federal 1031 rules for Virginia sellers
- Virginia 1031 exchange mistakes to avoid
- Start your Virginia exchange
- Frequently asked questions
- Sources
How much is capital gains tax on real estate in Virginia?
Virginia's rate schedule has not changed since 1990: 2% on the first $3,000 of taxable income, 3% up to $5,000, 5% up to $17,000, and 5.75% on everything above that. There is no separate rate or exclusion for long-term gains, so Virginia capital gains tax on a rental, a strip center or raw land is 5.75% for practically every seller. The 2026 budget kept that structure; proposals for a higher bracket on top earners did not become law.
Depreciation recapture is not treated differently either. The slice of the gain that the IRS taxes at up to 25% as unrecaptured §1250 gain is taxed by Virginia at the same 5.75%. What can differ is the amount of gain, because Virginia does not follow federal bonus depreciation (see below). Virginia has no local income tax, so a Fairfax seller and a Roanoke seller pay the same state rate. Estimate the federal recapture piece with our depreciation recapture calculator.
Virginia 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 already in the top federal bracket and, like nearly every Virginia seller, the 5.75% bracket.
| 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 |
| Virginia income tax: 5.75% × $300,000 | $17,250 |
| Total tax deferred by a full 1031 exchange | $93,650 |
Virginia adds about 23% to the federal bill in this example. The exchange also keeps the $17,250 invested, which at a 6% cap rate is roughly $1,000 a year of extra income. See both paths side by side in our capital gains vs. 1031 exchange comparison.
Why your Virginia gain may differ from your federal gain
Virginia moved from rolling conformity to a fixed conformity date of December 31, 2025, and it keeps its long-standing exception for federal bonus depreciation. Owners who took bonus depreciation on a cost segregation study had to add most of it back on their Virginia returns and deduct it over time. That leaves a higher Virginia basis in those components than the federal basis.
When you sell, the Virginia gain can therefore be smaller than the federal gain. When you exchange, the lower federal basis and the higher Virginia basis both carry into the replacement property. Keep a separate Virginia depreciation schedule for the new property, or you will overpay Virginia tax when you eventually sell. Your Form 8824 worksheet covers the federal side only.
Nonresident sellers: registration, not withholding
Virginia does not withhold income tax from a nonresident's sale proceeds at closing. Instead, it relies on reporting. Nonresident individuals, estates, trusts, pass-through entities with nonresident owners and out-of-state corporations that sell or rent Virginia real property must be registered with Virginia Tax. The settlement agent or broker sends Form R-5 (individuals) or R-5P (pass-throughs) by the 15th day of the month after closing, and files it for you if you do not respond within 60 days. Form R-5E covers sales that are exempt from income tax.
No withholding means a nonresident's full proceeds reach the qualified intermediary without a certificate. The tax is still owed if you do not exchange: a nonresident reports Virginia-source gain on the nonresident return. Foreign sellers still face federal FIRPTA withholding; read FIRPTA for foreign sellers.
Virginia grantor tax, recordation tax and regional fees
Deed taxes are charged when the deed records, and a 1031 exchange does not defer them. Virginia splits them between the parties by statute:
- Grantor tax (seller): $0.50 per $500 of consideration, or 0.10%.
- Northern Virginia regional fees (seller): in Northern Virginia Transportation Authority localities, a regional congestion relief fee of $0.10 per $100. State law also imposes a regional WMATA capital fee of $0.10 per $100 in those localities; confirm the current combined amount with the clerk's deed calculator.
- State recordation tax (buyer): $0.25 per $100, or 0.25%.
- Local recordation tax (buyer): one-third of the state tax, about 0.083%.
On a $900,000 sale in Arlington the seller pays $900 of grantor tax plus at least $900 in regional fees. As buyer of the replacement property you pay about $3,000 of recordation tax on the same price. The grantor and grantee can agree to shift the regional fees in the contract.
Virginia conformity and clawback
Virginia starts from federal adjusted gross income, so a valid federal exchange is also deferred for Virginia. The December 31, 2025 conformity date covers the current version of Section 1031, which is limited to real property. Virginia has no clawback: it does not require annual filings when you trade into another state, and it does not follow the deferred gain once you and the property are gone.
Moving into or out of Virginia
If you move away and sell Virginia property later, Virginia taxes the gain as Virginia-source income on a nonresident return. If you exchange into property elsewhere before moving, a later sale of that out-of-state property is not Virginia income.
Moving in works the other way. Virginia taxes residents on all gain, including appreciation that built up before you arrived, unless the prior state has a clawback. Retirees often exchange Northern Virginia rentals into Tennessee or Florida, which have no income tax. Commuters in Maryland or the District who own Virginia rentals pay Virginia first and claim a credit at home.
Where Virginia 1031 exchanges happen
Northern Virginia dominates: Fairfax, Arlington, Loudoun and Prince William owners exchange condos and townhouses into larger multifamily or net-lease retail, often outside the region. Richmond sees apartment and industrial trades. Hampton Roads has a deep pool of military rentals in Norfolk, Chesapeake and 1031 exchange in Virginia Beach covers that market in detail. Charlottesville and the Shenandoah Valley add farmland and short-term rentals.
Federal 1031 rules for Virginia sellers
Your 45-day identification period and 180-day closing period start when the Virginia deed records, and neither extends for holidays. Use a qualified intermediary so you never touch the proceeds. Buy replacement property worth at least what you sold and carry equal or greater debt, or add cash. More detail is in our 1031 exchange guides; test your list with the 45-day identification validator and model the deal with the 1031 exchange calculator.
Virginia 1031 exchange mistakes to avoid
- Assuming a lower rate on long-term gains. Virginia has none, so the 5.75% applies to the whole gain.
- Losing track of Virginia basis. Bonus depreciation addbacks change your Virginia basis in the replacement property. Without records you pay twice.
- Ignoring the R-5 letter. Nonresidents who skip the registration get filed for anyway and invite a notice.
- Leaving regional fees out of net proceeds. Northern Virginia sellers pay more than the base grantor tax.
- Treating a Virginia Beach vacation rental as automatically qualifying. Heavy personal use can disqualify it; see does my property qualify.
Start your Virginia exchange
We act as qualified intermediary for Virginia sellers from Alexandria to Abingdon. Send us the contract and your settlement agent's contact, and we will have exchange documents ready before closing. Start your exchange or schedule an intro call.
Frequently asked questions
How can I avoid capital gains tax on real estate in Virginia?
Use a 1031 exchange: sell through a qualified intermediary and buy like-kind investment property of equal or greater value within 180 days. That defers the 5.75% Virginia tax and the federal tax. Holding property until death also removes the gain through a stepped-up basis.
What is the Virginia capital gains tax rate on real estate?
Virginia taxes capital gains as ordinary income. The 5.75% top rate applies to taxable income above $17,000, so nearly all of a real estate gain is taxed at 5.75%. There is no local income tax.
Does Virginia withhold tax when a nonresident sells property?
No. Virginia requires the settlement agent or broker to report nonresident sellers on Form R-5 or R-5P, but it does not withhold tax at closing. The nonresident still owes Virginia tax on the gain unless it is deferred.
Who pays grantor tax in Virginia, and does a 1031 exchange defer it?
The seller pays grantor tax of $0.50 per $500, plus $0.10 per $100 regional fees in Northern Virginia. The buyer pays the recordation tax. A 1031 exchange does not defer any of these.
Does Virginia tax my gain differently than the IRS?
It can. Virginia does not allow federal bonus depreciation, so owners who claimed it have a higher Virginia basis and may report a smaller Virginia gain. Keep separate Virginia records for replacement property.
Can I exchange Virginia property for property in another state?
Yes. Any US investment real estate qualifies, and Virginia has no clawback or annual reporting for out-of-state replacement property.
Sources
- Code of Virginia §58.1-320 (individual rates)
- Virginia Tax: Tax Bulletin 26-1, date of IRC conformity
- Virginia Tax: Registration of nonresident property owners
- Code of Virginia §58.1-802.3 (regional WMATA capital fee)
- Code of Virginia §58.1-802.4 (regional congestion relief fee)
- Prince William County Circuit Court: land records fees
- City of Alexandria: recordation tax
Related: 1031 exchange in Maryland, North Carolina, Washington DC, West Virginia and all 50 states.
General information about Virginia taxes, not tax or legal advice. Talk with a Virginia CPA or attorney about your own sale.
