Does North Dakota recognize 1031 exchanges?
Yes. The North Dakota individual return, Form ND-1, starts from federal taxable income on line 1b, so gain you defer federally under Section 1031 never enters North Dakota taxable income. There is no state add-back for deferred exchange gain and no separate North Dakota exchange form.
The federal rules control everything else. Section 1031 of the Internal Revenue Code and Treasury Regulation 1.1031(k)-1 set the like-kind test, the 45-day identification window and the 180-day closing deadline.
Federal 1031 rules that apply in North Dakota
Every North Dakota exchange must meet these federal requirements. Miss one and the gain is generally taxable on both returns.
- Our 1031 exchange rules page explains each requirement with dates, and the 1031 exchange guide covers the types of exchange.
- Weekends and holidays count toward both deadlines.
| Rule | What it requires | Source |
|---|---|---|
| Like-kind real property | U.S. investment or business real estate for other U.S. real estate held the same way | IRC 1031(a), (h) |
| Qualified intermediary | Proceeds held under a written agreement; you never take the cash | Treas. Reg. 1.1031(k)-1(g) |
| 45-day identification | Written, signed list delivered by midnight of day 45 | IRC 1031(a)(3)(A) |
| 180-day closing | Close by day 180 or your return due date with extensions, if earlier | IRC 1031(a)(3)(B) |
| Same taxpayer | The person or entity that sells must buy | Treas. Reg. 1.1031(k)-1 |
| Full deferral | Buy equal or greater value, reinvest all net cash, replace the debt | IRC 1031(b) |
What the 40% exclusion means for an exchange
North Dakota taxes income at 0%, 1.95% and 2.5%, and under NDCC 57-38-30.3 it first excludes 40% of net long-term capital gain allocated to the state. For a seller in the top bracket the state tax on long-term gain is 1.5%, so the state share of what an exchange defers is small next to the federal share.
The exclusion also applies to boot. If you take cash out of an exchange, or end up with less debt and do not make up the difference, the boot is taxable gain. In North Dakota, long-term boot still gets the 40% exclusion, so $100,000 of boot costs at most $1,500 in state tax. That makes a partial exchange, where you keep some cash on purpose, cheaper here than in a state with a 5% or 9% rate.
Withholding at closing and how an exchange affects it
The withholding rule that matters most in North Dakota exchanges is the one for passthrough entities. Under NDCC 57-38-31.1, a partnership, LLC taxed as a partnership or S corporation must withhold North Dakota income tax from a nonresident member’s distributive share of income, unless the member has filed Form PWE to elect out.
A full exchange keeps the deferred gain off the entity’s federal and North Dakota income for the year, so it does not swell the distributive share that withholding is figured on. Boot does. If a Minnesota or South Dakota investor owns part of a Fargo LLC that sells and exchanges, the boot share allocated to that investor is North Dakota income, and the entity should plan for withholding on it.
Foreign sellers face federal FIRPTA withholding of 15% of the amount realized, and an exchange does not remove it automatically. A foreign owner needs an IRS withholding certificate arranged before closing.
Is there a North Dakota clawback on 1031 exchanges?
No. North Dakota does not track deferred gain after you exchange out of the state. You can sell a building in Bismarck and buy in South Dakota, Texas or Arizona with no North Dakota tracking filing in later years.
Residency still matters. North Dakota taxes its residents on their income, so if you stay in North Dakota and later sell the replacement in a taxable sale, the whole gain, including the part deferred from the North Dakota building, lands on your North Dakota return. Nonresidents are taxed on income from property located in North Dakota (NDCC 57-38-04), so an owner who has moved away and sells an out-of-state replacement is generally outside North Dakota’s reach. Plan any move with a CPA.
Four states do keep a claim: California, Massachusetts, Montana and Oregon. An owner who exchanges a Montana or Oregon building for a North Dakota one keeps that state’s filing duties, and the home state can tax the deferred gain when the North Dakota replacement is later sold in a taxable sale. If you are buying from one of those owners, that is their issue, not yours, but it can shape their timing.
Does North Dakota regulate qualified intermediaries?
No. North Dakota is not one of the nine states with a law covering exchange intermediaries; those are California, Colorado, Connecticut, Idaho, Maine, Nevada, Oregon, Virginia and Washington. In North Dakota, the safety of your exchange money rests on the firm you pick and the agreement you sign.
Federal rules bar your agent from serving, including anyone who was your attorney, accountant, employee or real estate broker in the two years before the sale, and related parties. Ask how funds are held, whether withdrawals need your signature, and what fidelity bond and errors and omissions coverage the firm carries. Our 1031 qualified intermediary guide has a checklist.
Common 1031 exchange paths in North Dakota
Most North Dakota exchanges fall into a handful of patterns.
- North Dakota to North Dakota: trading an older building in Minot, Grand Forks or the oil counties for a newer one in Fargo, West Fargo or Bismarck. The deferred gain stays a North Dakota item for the future.
- North Dakota to a state with no income tax: South Dakota, Texas and Florida are common destinations. The new state adds no income tax, but a North Dakota resident still reports the rents and any later taxable sale on the North Dakota return.
- North Dakota to Minnesota or another income-tax state: the new state taxes future rents, and a later taxable sale may be taxed there.
- Into a Delaware statutory trust: owners who want out of management can identify a DST interest as replacement property. Our 1031 exchange DST guide covers the trade-offs.
- Reverse exchange: buying the replacement first through an exchange accommodation titleholder, then selling the North Dakota building within 180 days.
Worked example: a $2 million North Dakota 1031 exchange
A married couple sells a 24-unit building in Fargo for $2,000,000 in 2026. Selling costs are $100,000, so the amount realized is $1,900,000. Adjusted basis is $820,000 after $380,000 of depreciation, for a gain of $1,080,000. The $900,000 mortgage is paid off at closing, and the intermediary holds the remaining $1,000,000. Their other taxable income is $450,000, which keeps them in the top brackets on both returns.
Full exchange: they buy a $2,300,000 building in Sioux Falls with the $1,000,000 of exchange funds and a $1,300,000 loan. The price exceeds the amount realized, all cash is reinvested and the new debt exceeds the old, so all $1,080,000 of gain is deferred. That defers $276,040 of federal tax ($95,000 at 25% on the $380,000 of unrecaptured Section 1250 gain, $140,000 at 20% on $700,000 of long-term gain, and $41,040 of net investment income tax) and $16,200 of North Dakota tax, for $292,240 in all.
Partial exchange: they take $150,000 in cash and use $850,000 of exchange funds plus a $1,450,000 loan on the same building. The larger loan does not offset cash received, so the $150,000 is boot. Federally it is taxed first as unrecaptured Section 1250 gain at 25%, $37,500, plus $5,700 of net investment income tax. North Dakota excludes 40%, leaving $90,000 taxed at 2.5%, or $2,250. Total tax is $45,450, and the other $930,000 of gain stays deferred. Their basis in the new building is $1,370,000.
- The North Dakota figures use the 2025 brackets, the latest published; this couple is above the top threshold either way.
- The 1031 exchange calculator runs these steps with your numbers.
| Scenario | Federal tax now | North Dakota tax now | Gain deferred |
|---|---|---|---|
| Taxable sale, no exchange | $276,040 | $16,200 | $0 |
| Full exchange | $0 | $0 | $1,080,000 |
| Partial exchange, $150,000 boot | $43,200 | $2,250 | $930,000 |
Property tax on a North Dakota replacement property
If your replacement is in North Dakota, budget property tax on the price you pay. North Dakota values property every year at true and full value, and a building with four or more units is commercial property, taxed on 5% of market value at the local mill rate. In Cass County, where the 2025 average works out to about 294 mills, that is roughly 1.47% of value a year. Our guide to the property tax rate in North Dakota has county figures and a worked example.
North Dakota timeline tips
Both clocks start on the day your sale closes, so the buyer’s timing sets your deadlines. Sign the exchange agreement and assign the sale contract to the intermediary before closing; you cannot start an exchange once the money has reached you.
Winter can slow inspections, appraisals and construction draws, so leave slack in the 180 days for a January or February closing. When the IRS announces disaster relief for North Dakota counties, it can postpone the 45-day and 180-day deadlines for affected taxpayers under Revenue Procedure 2018-58. Read the notice for your county rather than assuming it applies.
Skyline buys apartment buildings with five or more units in North Dakota. We buy directly, close on your timeline, and can work inside 1031 deadlines. We can set a closing date that gives you room to line up a replacement, and we work with your intermediary on the assignment.
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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