North Dakota Capital Gains Tax on Real Estate

By Skyline Capital Investments · Updated October 26, 2026 · 7 min read

Does North Dakota have a capital gains tax?

Yes, but it is small. North Dakota has no separate capital gains tax; the gain from selling a building is part of your income and is taxed at the state’s individual income tax rates of 0%, 1.95% and 2.5% under North Dakota Century Code section 57-38-30.3.

The same section gives sellers a large break. Before the rates apply, you reduce your income by 40% of the excess of net long-term capital gain over net short-term capital loss, to the extent the gain is allocated to North Dakota. Qualified dividends get the same 40% exclusion. On Form ND-1 the capital gain piece is line 6, “Net long-term capital gain exclusion.”

Put the two together and a seller in the top bracket pays 2.5% on only 60% of a long-term gain, which is 1.5% of the gain. A building held a year or less gets no exclusion, so its gain is taxed at up to the full 2.5%.

North Dakota income tax brackets

The rates are fixed in statute, and the bracket amounts are indexed for inflation each year. The North Dakota Office of State Tax Commissioner has published the 2025 brackets below. The 2026 brackets had not been posted when this page was updated in October 2026; they will be slightly higher because of indexing, and the 2026 withholding tables are not the same thing as the tax brackets.

• The return starts from federal taxable income (Form ND-1, line 1b), so the gain you report to the IRS flows straight onto the North Dakota return.
• The 40% exclusion comes off before the brackets apply. A $1,000,000 long-term gain adds $600,000 to North Dakota taxable income.
• A joint filer whose other income already passes $298,075 pays 2.5% on every remaining dollar, which is why the effective rate on a big gain lands at 1.5%.

What the 40% exclusion does not cover

The exclusion is generous, but it has edges, and they matter on an apartment sale where the gain comes in several pieces.

• Short-term gain. A building or interest you held one year or less produces short-term gain, which is taxed at up to 2.5% with no exclusion.
• Ordinary income items. Section 1245 recapture on personal property and any gain the IRS treats as ordinary income stay fully taxable on the North Dakota return.
• Gain allocated to another state. The statute limits the exclusion to net long-term gain allocated to North Dakota, so a nonresident cannot use it on property located elsewhere.
• Net short-term losses. The exclusion is 40% of net long-term gain minus net short-term loss, so a short-term loss in the same year reduces the amount excluded.

How a North Dakota gain stacks with federal tax in 2026

The federal tax is by far the larger bill. Federal long-term gain is taxed at 0%, 15% or 20%, with the gain stacked on top of your other taxable income. IRS Revenue Procedure 2025-32 sets these 2026 thresholds.

• Gain equal to straight-line depreciation on the building (unrecaptured Section 1250 gain) is taxed federally at up to 25%.
• The 3.8% net investment income tax applies above $200,000 of modified AGI for single filers and $250,000 for joint filers. Those thresholds are not indexed.
• Because North Dakota starts from federal taxable income, a gain the IRS taxes in 2026 is also North Dakota income in 2026, and a gain the IRS defers is deferred here too.

Depreciation recapture in North Dakota

North Dakota has no separate recapture rate. Recapture is simply part of the federal taxable income that the state return picks up, so it is taxed at 0% to 2.5%.

Whether the 40% exclusion applies depends on what kind of recapture it is. Unrecaptured Section 1250 gain on a building you held more than a year is part of your federal net long-term capital gain, even though the IRS taxes it at up to 25%, so North Dakota’s exclusion reaches it. Section 1245 recapture is different. If a cost segregation study moved appliances, carpet or site work into shorter lives, the gain on those items is ordinary income federally, and it gets no North Dakota exclusion.

For a typical apartment building with no cost segregation, nearly all of the gain qualifies. Our depreciation recapture calculator splits a sale into these pieces.

Nonresident sellers and passthrough withholding

Individual sellers usually pay the North Dakota tax on a sale year’s gain through estimated payments on Form ND-1ES and the annual return. Ask your closing agent and CPA early whether any state amount should be set aside from the proceeds.

Nonresidents still owe North Dakota tax on the gain. Income from tangible property with a North Dakota situs, which includes a building in Fargo or Minot, is North Dakota income no matter where the owner lives (NDCC 57-38-04). The 40% exclusion applies to the part of the gain allocated to North Dakota, so a nonresident gets it on a North Dakota building.

Owners who hold through a partnership, LLC taxed as a partnership or S corporation face one withholding rule. Under NDCC 57-38-31.1 the entity must withhold North Dakota income tax from a nonresident member’s distributive share of income, unless that member files Form PWE to elect out. The election does not cancel the tax; the member still files a North Dakota return. In a sale year that distributive share includes the gain, so plan the cash before closing.

Federal FIRPTA withholding of 15% of the amount realized applies if the seller is a foreign person, unless an exception or IRS withholding certificate applies.

Worked example: selling a $2 million North Dakota apartment building

A married couple filing jointly bought a 24-unit building in Fargo in 2014 for $1,200,000 and have taken $380,000 of straight-line depreciation. They sell in 2026 for $2,000,000 with $100,000 of commission and closing costs, so the amount realized is $1,900,000. Adjusted basis is $820,000, leaving a gain of $1,080,000. Their other taxable income is $450,000.

Federal tax: the $380,000 of unrecaptured Section 1250 gain is taxed at the 25% cap, $95,000. The other $700,000 of long-term gain sits above $613,700 and is taxed at 20%, $140,000. Net investment income tax at 3.8% on the full gain is $41,040.

North Dakota tax: the 40% exclusion on $1,080,000 of net long-term gain is $432,000, so the sale adds $648,000 to North Dakota taxable income. Their $450,000 of other income is already above the $298,075 top bracket threshold for 2025, so all $648,000 is taxed at 2.5%: $16,200. That is 1.5% of the gain. Without the exclusion the state tax would be $27,000.

• The example uses the 2025 North Dakota brackets, the latest published. Since this couple is well into the top bracket, indexing for 2026 would not change the $16,200.
• A smaller seller with less other income would have part of the gain taxed at 1.95% or 0%, so the state share would be lower still.
• The capital gains tax calculator runs the federal steps with your numbers.

How a 1031 exchange changes the North Dakota bill

A 1031 exchange defers the North Dakota tax along with the federal tax, because North Dakota starts from federal taxable income and does not add deferred gain back. In the example, a full exchange into a replacement worth at least $1,900,000, with all net cash reinvested and the debt replaced, would defer all $292,240 for 2026.

North Dakota has no clawback rule. California, Massachusetts, Montana and Oregon track gain that leaves the state in an exchange, but North Dakota does not, so a Fargo owner can trade into a building in South Dakota, Minnesota or Arizona without a North Dakota tracking form. Cash or debt relief you keep is boot, which is taxable on both returns, and long-term boot still gets the 40% exclusion here.

With a top effective state rate of 1.5%, the state tax alone rarely justifies an exchange. The federal tax does. Our guide to the 1031 exchange in North Dakota covers the deadlines and the paths owners use, and the 1031 exchange rules page walks through each requirement.

Planning points before you sell in North Dakota

A few choices change the North Dakota number more than the rate does.

• Hold for more than a year. The 40% exclusion only applies to net long-term gain, so a short hold can raise the state tax by two-thirds.
• Check your capital losses. The exclusion is figured on net long-term gain over net short-term loss, so losses elsewhere on your return shrink both the gain and the exclusion.
• Look at cost segregation history. Section 1245 recapture is taxed in full at ordinary rates on both returns.
• Watch residency if you are moving. A North Dakota building is North Dakota income wherever you live, and your new state may tax it too, with a credit question your CPA should check.
• Spread the gain. An installment sale can keep part of the gain in the 0% or 1.95% North Dakota brackets and lower federal brackets in later years.

Selling your North Dakota apartment building

Skyline buys apartment buildings with five or more units in North Dakota, from Fargo and Grand Forks to Bismarck and Minot. We buy directly, close on your timeline, and can work inside 1031 deadlines.

For the tax a buyer will carry after closing, see our page on the property tax rate in North Dakota. For the lease and deposit rules that transfer with the building, see North Dakota landlord-tenant law for apartment owners.