The short answer
Arkansas income tax law has its own exchange provision, Ark. Code §26-51-412, under which an exchange of property is treated as a conversion of assets from one form to another from which no gain or loss is deemed to arise, and the state adopts the federal capital-gain computation sections, so a completed like-kind exchange of Arkansas real estate is generally reported to Arkansas as deferred, just as it is federally. A taxable sale would instead be taxed at up to 3.7 percent for tax year 2026 on half the net capital gain, because Arkansas excludes 50 percent of net capital gains and all net capital gain above $10 million. Arkansas has no closing withholding and no post-exchange reporting; its real costs are the $3.30-per-$1,000 transfer tax and the county reappraisal cycle.
Arkansas at a glance
| State income tax on real estate gains | 3.7% top rate for 2026, applied to only half of net capital gain |
|---|---|
| Exchange treatment | §26-51-412: an exchange is a conversion of assets from which no gain or loss arises |
| Large gains | Net capital gain over $10 million (realized on or after Jan 1, 2014) is fully exempt |
| Withholding at closing | None; Arkansas has no nonresident real estate withholding |
| Transfer tax | $3.30 per $1,000 ($1.10 + $2.20) above $100 of consideration; split 50/50 unless agreed |
| Deferred-gain tracking | None; no Arkansas form follows deferred gain |
| Property tax | Amendment 79 caps reappraisal increases at 10% a year for non-homestead parcels |
| Farm and timber land | Assessed on soil productivity (use value) under Ark. Code §26-26-407 |
Arkansas has its own exchange statute rather than a line adopting §1031
Arkansas adopts federal tax provisions section by section, each 'as in effect on' a stated date, rather than taking the Internal Revenue Code wholesale. Its exchange rule is Ark. Code §26-51-412(a): property received in an exchange is treated as cash to the extent of its fair market value only if a market exists in which all of it 'can be disposed of at the time of exchange for a reasonable, certain, and definite price in cash'; otherwise the exchange 'shall be considered as a conversion of assets from one form to another, from which no gain or loss shall be deemed to arise'.
Real estate exchanged for real estate does not fit the ready-cash-market description, so a completed like-kind exchange of Arkansas property is generally reported to Arkansas as deferred, matching the federal Form 8824 result; Arkansas also adopts the federal capital gain and loss sections (26 U.S.C. §§1211–1257) through §26-51-815. Because the Arkansas wording is older and broader than §1031, have your CPA confirm the Arkansas reporting for your specific exchange rather than assuming the two returns match line by line.
No Arkansas information return follows a completed exchange, and no rule follows gain deferred into out-of-state property. Once the exchange is complete, the state's next opportunity to tax the gain is a later taxable sale by an Arkansas resident or of Arkansas property.
Half of every net capital gain is exempt, and anything over $10 million is fully exempt
For a taxable sale, Ark. Code §26-51-815 excludes 50 percent of net capital gain from Arkansas income (the percentage has been 50 percent since July 1, 2016). Separately, the amount of net capital gain in excess of $10 million from a gain realized on or after January 1, 2014 is exempt altogether. The rules apply to individuals and pass-through owners, not to C corporations.
Combined with the rate schedule, the arithmetic is unusual for a state with an income tax: a $1 million long-term gain on an Arkansas rental sold taxably in 2026 exposes $500,000 to Arkansas tax at rates topping out at 3.7 percent, an effective rate under 2 percent on the whole gain. An exchange still defers that amount, and the deferral compounds, but the gap between exchanging and paying is narrower in Arkansas than in most states.
For a very large gain the $10 million exemption can matter more than the exchange. A seller expecting gain well above that figure should model the taxable sale, the exchange and a partial exchange with a CPA before choosing.
The 3.7 percent top rate for tax year 2026
Arkansas cut its top individual income tax rate to 3.7 percent in a May 2026 special session (HB 1001 and SB 1, signed May 6, 2026), retroactive to January 1, 2026; the rate had been 3.9 percent. The Tax Foundation notes it is the state's fourth rate cut in four years, down from 4.9 percent when the current governor took office.
Rates are what a taxable sale, boot or a failed exchange would face; a completed exchange faces none of them. Because the rate is now low and the capital-gain exclusion large, Arkansas investors often exchange for reasons other than the state tax, such as the federal bill, estate planning or leaving active management for passive DST ownership.
$3.30 per $1,000 transfer tax: who pays under §§26-60-105 and 26-60-106
Arkansas's real property transfer tax has two layers in Ark. Code §26-60-105: $1.10 per $1,000 of consideration (or fraction), plus an additional $2.20 per $1,000 that the statute says is 'to be paid by the purchaser', whenever the consideration exceeds $100. The Department of Finance and Administration states the combined figure as $3.30 per $1,000 and notes that the tax reaches transfers of mineral rights as well as surface land.
Section 26-60-106 adds that the tax applies at the time of transfer, is computed on the full consideration and, 'unless agreed upon otherwise, shall be paid one-half by the grantor or seller and one-half by the grantee or purchaser'. In practice the purchase contract settles the allocation; an exchanger should decide in the contract whether the buyer or the exchange proceeds bear the seller's share, since paying it from exchange funds is a closing cost that reduces what reaches the replacement property.
A like-kind exchange changes nothing about the tax. The deed on the relinquished Arkansas property is taxed, and so is the deed on any Arkansas replacement property; the affidavit of compliance filed with the county recorder reports the consideration and the tax paid or the exemption claimed.
Amendment 79's 10 percent cap on reappraisal increases and the unsettled sale question
Amendment 79 to the Arkansas Constitution limits how fast taxable assessed value can rise after a county-wide reappraisal: no more than 10 percent a year for a parcel that is not the owner's homestead (5 percent for a homestead) until the reappraised value is reached. The caps do not apply to newly discovered property, new construction or substantial improvements.
Whether the cap survives a sale is genuinely unsettled. An Arkansas Attorney General opinion reviewing §1(b) and (c) of Amendment 79 concluded the amendment is 'ambiguous with respect to the question of whether the conveyance of property subject to either of the referenced caps would warrant lifting the cap on the purchaser's assessments' until the next reappraisal, and that neither the amendment nor the Legislature has addressed it. Buyers of Arkansas replacement property should ask the county assessor how that county handles a mid-cycle sale.
One transfer rule is explicit: under Ark. Code §26-26-1120, when a homeowner aged 65 or older or disabled sells a homestead whose assessment was frozen, the purchaser gets no reduction and the property is assessed at full market value from the January 1 after the sale. A buyer of a retiree's former home who intends to rent it should budget on that basis.
No withholding at closing, and farmland is assessed on soil productivity
Nothing in Arkansas law makes a buyer or closing agent withhold Arkansas income tax from a nonresident's sale proceeds, and there is no certificate to file to avoid it. Out-of-state owners of Arkansas rentals report the gain on a nonresident return; in an exchange, nothing is withheld and nothing is claimed back.
Agricultural, pasture and timber land is valued for property tax on the productivity of its soil under Ark. Code §26-26-407, using tables the Assessment Coordination Division publishes each year (the 2026 valuation report is current), not on market value. An investor exchanging out of Arkansas farmland into commercial property elsewhere leaves a use-value assessment for a market-value one; an investor exchanging into Arkansas farmland gains it.
Replacement property
Exchanging Arkansas property into a DST: the exclusion and the low rate travel with you, the DST's states add returns
An Arkansas resident who exchanges into a DST keeps Arkansas's deferral through §26-51-412 and, if the DST interest is ever sold taxably, would generally still have the 50 percent net capital gain exclusion and the $10 million exemption on the Arkansas return, because those rules attach to the taxpayer's net capital gain rather than to Arkansas-located property.
The trade-off is filing in whichever states hold the DST's properties. Rental income is generally sourced to the property's state, so a DST with property in Georgia or Ohio may mean nonresident returns there, while property in Texas or Tennessee adds none; ask your CPA how Arkansas treats tax paid to those states and whether any of them withhold on distributions.
Timing follows the federal calendar, not an Arkansas one. There is no Arkansas withholding to release and no Arkansas form to file at the DST closing, so the 45-day and 180-day deadlines are the only clock; the relinquished deed's transfer tax is the one Arkansas closing cost to reconcile in the exchange accounting.
Breakwater Exchange has placed investors into DSTs from vetted national sponsors for more than 20 years, with DST transactions above a billion dollars, and is licensed in all 50 states, operating within a regulated broker-dealer framework; Arkansas investors can reach the firm only through the website form. Verify the Arkansas positions on this page with your CPA and the Department of Finance and Administration.
Questions investors ask about 1031 exchanges in Arkansas
Does Arkansas recognize a 1031 exchange, since its code does not cite §1031?
Arkansas reaches the same result through its own statute, Ark. Code §26-51-412, which treats an exchange of property as a conversion of assets from one form to another from which no gain or loss is deemed to arise unless the property received can be sold at once for a definite cash price. Have your CPA confirm the Arkansas reporting for your exchange.
How much Arkansas tax would I owe on a taxable sale of a rental in 2026?
Arkansas excludes 50 percent of net capital gain and taxes the rest at rates up to 3.7 percent for tax year 2026; net capital gain above $10 million is exempt entirely. A CPA can run the figure against your other income.
Who pays the Arkansas transfer tax when I sell?
Under §26-60-106 the $3.30-per-$1,000 tax is paid half by the seller and half by the buyer unless the parties agree otherwise, although §26-60-105 describes the $2.20 portion as paid by the purchaser; the purchase contract usually settles it.
Is any Arkansas tax withheld at closing if I live in another state?
No. Arkansas has no nonresident real estate withholding requirement; a nonresident reports any taxable gain on an Arkansas nonresident return, and an exchange seller has nothing to reclaim.
Does the Amendment 79 cap on assessed value transfer to the buyer of my property?
It is unsettled. The Attorney General has opined that Amendment 79 is ambiguous on whether the 10 percent (or 5 percent homestead) cap continues after a conveyance, and the Legislature has not resolved it; check with the county assessor where the property sits.
Does Arkansas make me report deferred gain each year after I exchange into out-of-state property?
No. Arkansas has no post-exchange information return of the kind California requires.
Sources
The rules above were checked against these publications on September 18, 2026. Rates and forms change; confirm the current version with your CPA and the Arkansas tax agency before you close. This page is general information, not tax or legal advice.
- Ark. Code §26-51-412, gain or loss — exchange of property
- Ark. Code §26-51-815, computing capital gains and losses
- Tax Foundation, Arkansas Cuts Income Tax Rates for the Fourth Time in Four Years (May 18, 2026)
- Arkansas Department of Finance and Administration, Real Property Transfer Tax
- Ark. Code §26-60-105, levy on deeds, instruments and writings — additional tax
- Arkansas Constitution, Amendment 79 — property tax relief
- Arkansas Attorney General opinion on Amendment 79 caps after a sale (CourtListener)
- Arkansas Assessment Coordination Division, 2026 Cropland, Pastureland and Timberland Valuation