Does Kansas recognize 1031 exchanges?
Yes. A Kansas 1031 exchange works the same way at the state level as it does federally, because Kansas adjusted gross income starts from federal adjusted gross income under K.S.A. 79-32,117. Gain you defer under Section 1031 never enters federal AGI, so Kansas does not tax it either.
Kansas adds no exchange form and no deadlines of its own. What it adds is a reason to exchange. Kansas taxes capital gains at the same 5.2% and 5.58% rates as wages, and on a building sale nearly all of the gain lands in the 5.58% bracket. The Department of Revenue confirmed in Notice 25-06 that the scheduled rate cut did not trigger for 2026, and in Notice 26-11 that it did not trigger for 2027 either.
Federal 1031 rules that apply in Kansas
The federal timeline controls. You have 45 days from closing to identify replacement property in writing and 180 days, or your tax return due date if earlier, to close on it. Both properties must be real property held for investment or business use, and a qualified intermediary must hold the proceeds so you never touch them.
Buy replacement property of equal or greater value and reinvest all the net cash to defer the whole gain. Cash you keep, or debt that is paid off and not replaced, is boot. Our guide to 1031 exchange rules sets out identification and boot in full, and the complete 1031 exchange guide covers the process from listing to closing.
What a 1031 exchange defers in Kansas
An exchange defers the Kansas tax on every part of the gain, including depreciation recapture, because Kansas taxes all of it at the same rates. On a $1,000,000 gain, that is about $55,800 of Kansas tax at 5.58%, on top of the federal tax deferred.
That is a bigger state share than in neighboring states. Missouri lets individuals subtract capital gain, and Oklahoma lets owners deduct gains on Oklahoma real estate held five years. A Kansas owner has no such deduction, so the exchange protects both the federal and the state amounts.
| Tax on a building gain | Rate in 2026 | Deferred by a full exchange? |
|---|---|---|
| Federal tax on appreciation | 0%, 15% or 20% | Yes |
| Federal tax on straight-line depreciation | Up to 25% | Yes |
| Federal net investment income tax | 3.8% above the thresholds | Yes |
| Kansas income tax on the whole gain | 5.2% / 5.58% | Yes |
Does Kansas have a 1031 clawback?
No. Kansas does not track deferred gain after you exchange into property in another state, and it has no annual filing for an out-of-state replacement. Only California, Massachusetts, Montana and Oregon have clawback or tracking rules of that kind.
Residency still matters when you eventually sell. If you remain a Kansas resident and later sell the replacement in a taxable sale, Kansas taxes the gain, including the deferred amount, wherever the property sits. If you have moved to a state with no income tax by then and the replacement is outside Kansas, Kansas has no rule to reach back for the gain. If the replacement is in Kansas, Kansas can still tax the gain on a later sale because the property is there.
Withholding at closing on a Kansas exchange
Your title company handles any state paperwork at closing, so ask early whether anything applies to your sale, especially if you or your entity are based outside Kansas. Nonresidents who sell a Kansas building in a taxable sale report the gain on a Kansas nonresident return.
Federal rules still apply. If the seller is a foreign person, FIRPTA withholding can apply even in an exchange unless the IRS issues a withholding certificate. Tell the title company and your intermediary at the start that the sale is part of an exchange, so the closing statement sends the proceeds to the intermediary and not to you.
Does Kansas regulate qualified intermediaries?
No. Kansas is not one of the nine states with a law regulating exchange intermediaries: California, Colorado, Connecticut, Idaho, Maine, Nevada, Oregon, Virginia and Washington. A Kansas intermediary needs no state license and faces no state bonding or account rules.
Do the checking a regulator would do elsewhere. Ask for the intermediary’s fidelity bond and errors and omissions coverage in writing, how your funds will be held, and whether withdrawals require your signature. The intermediary cannot be someone who acted as your agent in the past two years, such as your attorney, CPA, employee or real estate broker. Our guide to choosing a 1031 qualified intermediary covers fees and contract terms.
Common 1031 exchange paths for Kansas owners
Most Kansas exchanges follow one of four paths.
- Kansas to Kansas: trading smaller rentals in Topeka, Lawrence or Manhattan for a larger building in Wichita or Johnson County. Nothing changes on the state side.
- Across the Kansas City state line: selling in Overland Park or Olathe and buying on the Missouri side, or the reverse. Missouri now lets individuals subtract capital gain, so where the replacement sits and where you live at the next sale both affect the state tax.
- Kansas to Oklahoma, Texas or Colorado: common for owners who want larger markets or plan to move. Kansas files nothing extra.
- Kansas into a Delaware statutory trust: a passive replacement for owners who want to stop managing property. See our guide to 1031 exchanges into a DST.
Worked example: a Kansas exchange with boot
An owner in Wichita sells a 24-unit building for $2,000,000. Selling costs are $80,000 and adjusted basis is $900,000, so the gain is $1,020,000. The owner used straight-line depreciation only. The owner takes $120,000 in cash at closing, and the intermediary puts the rest toward a $2,300,000 building in Overland Park with a new loan.
The $120,000 of cash is boot, so $120,000 of gain is recognized and $900,000 is deferred. Federally, the boot is taxed as unrecaptured Section 1250 gain at 25%, $30,000, plus 3.8% net investment income tax of $4,560, for $34,560. In Kansas, the owner’s other income already fills the 5.2% bracket, so the boot is taxed at 5.58%, or $6,696.
The Kansas tax deferred on the $900,000 is about $50,220. A plain sale would have cost about $56,916 in Kansas tax on the full $1,020,000. If the owner had left the $120,000 with the intermediary and used it in the purchase, all of the gain would be deferred and the Kansas tax this year would be zero.
| Item | Amount |
|---|---|
| Sale price | $2,000,000 |
| Total gain | $1,020,000 |
| Cash boot taken | $120,000 |
| Gain deferred | $900,000 |
| Federal tax on boot | $34,560 |
| Kansas tax on boot (5.58%) | $6,696 |
| Kansas tax deferred | $50,220 |
Debt and basis in a Kansas exchange
Replacing the debt matters as much as reinvesting the cash. If the Wichita building carried a $900,000 loan and the Overland Park building were bought with only $700,000 of new debt and no extra cash, the $200,000 drop in debt would be boot, taxed like cash in both federal and Kansas returns.
The deferred gain carries into the replacement as a lower basis, so depreciation on the new building is smaller than on a fresh purchase, and the gain on a later taxable sale is larger. Because Kansas follows federal adjusted gross income, the Kansas result tracks the federal one.
Property tax on a Kansas replacement property
Budget the replacement’s property tax before you identify it, because Kansas county levies vary widely. Apartments are assessed at the 11.5% residential rate on market value, which Kansas updates every year, so the tax on a replacement you buy will track its price.
In the example, the $2,300,000 Overland Park building would have $264,500 of assessed value. At the 2025 Johnson County average levy of 109.474 mills, that is about $28,956 a year. The Wichita building the owner sold, at $2,000,000 and the Sedgwick County average of 116.198 mills, would carry about $26,726. A larger building in a lower-levy county added only about $2,230 a year in tax. The same replacement in a county near the top of the levy table would cost far more, and that difference comes straight out of your net operating income.
Timeline tips for a Kansas exchange
Line up candidates before you list. The 45-day clock starts at closing and runs through weekends and holidays.
- Sign the exchange agreement and assign the sale contract before closing.
- Get the intermediary’s bond and insurance details in writing, since Kansas does not require them.
- If you sell late in the year, extend your federal and Kansas returns so the due date does not cut the 180 days short.
- If the replacement is in Missouri or another state, check that state’s closing costs and property tax before you identify it.
- Identify more than one property. The three-property rule lets you name up to three of any value, which gives you a fallback if the first choice fails inspection or financing.
Selling a Kansas apartment building as part of an exchange
Skyline buys apartment buildings with five or more units in Kansas. We buy directly, close on your timeline, and can work inside 1031 deadlines. We work with your intermediary on the contract assignment and can set a closing date that leaves time to find your replacement.
For the tax you would owe without an exchange, see Kansas capital gains tax on real estate. The 1031 exchange calculator runs the federal side for your own numbers.
Selling? Spread the tax with seller-carry terms
If a large tax bill is what is keeping you from selling, an installment sale may help. When you carry part of the price as a note, the gain is generally reported as you receive payments instead of all in the year of sale. Some parts of the gain, such as certain depreciation recapture, can still be due up front, so run the numbers with your CPA first.
Skyline Capital Investments buys apartment buildings with five or more units and can offer seller-carry terms, or a delayed closing that fits your 1031 timeline. Send the address and unit count and we typically respond within 48 hours. How seller financing works · How an installment sale is taxed · Seller financing calculator.
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