The short answer
Mississippi honors a 1031 exchange under its own statute, Miss. Code § 27-7-9(f), so no Mississippi income tax is due on gain deferred in a qualifying exchange of investment real estate. Sold for cash instead, the gain is taxed at Mississippi's flat rate, which is 4% on taxable income over $10,000 for 2026 and scheduled to fall to 3% by 2030. Nonresident sellers face a 5% withholding under § 27-7-308 on sales over $100,000, but the statute applies only to sales that are not an exchange, and Mississippi levies no real estate transfer tax.
Mississippi at a glance
| State tax on real estate gain | 4% on taxable income over $10,000 for tax year 2026 (4.4% for 2025); no lower gains rate |
|---|---|
| Scheduled rate cuts | 3.75% in 2027, 3.5% in 2028, 3.25% in 2029, 3% in 2030 under HB 1 (2025) |
| State 1031 conformity | Miss. Code § 27-7-9(f)(1)(A): no gain when none is recognized under IRC § 1031 |
| Nonresident withholding | 5% of the amount realized on sales over $100,000 (§ 27-7-308); exchanges excluded |
| Withholding affidavit | Form 89-386 computes 5% of gain instead, capped at net proceeds |
| Transfer tax | None at the state or county level |
| Property tax assessment | Rental and commercial real property at 15% of true value; owner-occupied homes at 10% |
| Claw-back on out-of-state replacement | None |
Mississippi's rate is 4% for 2026 and is written into law to keep falling
For tax year 2026 Mississippi taxes individual income above $10,000 at a single 4% rate, with the first $10,000 exempt. That is down from 4.4% in 2025 and 4.7% in 2024, and House Bill 1 of 2025, the Build Up Mississippi Act, continues the schedule: 3.75% for 2027, 3.5% for 2028, 3.25% for 2029 and 3% for 2030, with later reductions tied to revenue triggers until the tax is eliminated.
Mississippi gives real estate no capital-gains discount. The only gains exclusion in § 27-7-9(f)(10) is for shares in Mississippi financial institutions and domestic corporations, or interests in Mississippi limited partnerships and LLCs, held more than a year; gain on land and buildings is taxed as ordinary income at the flat rate.
The falling schedule changes the arithmetic of deferral. A Mississippi owner who exchanges in 2026 and later sells in a taxable sale meets a lower state rate, or none, so an exchange pushes state tax into cheaper years, whereas selling now locks in 4%.
The 5% nonresident withholding, and why an exchange is carved out of it
Miss. Code § 27-7-308 requires that when a nonresident sells Mississippi real property for gross proceeds over $100,000, 5% of the amount realized be withheld from the proceeds and paid to the Department of Revenue. The statute's opening clause limits it to a sale 'which is not considered an exchange or trade of such property,' so a properly structured like-kind exchange falls outside the requirement.
The withholding is unusual in that the statute places the duty on the seller rather than the buyer, and corporations registered to do business in Mississippi are treated as residents. A nonresident who is not exchanging can reduce the amount by filing Form 89-386, the Affidavit for Withholding Income Tax on Sale of Real Estate by Non-Resident, which computes 5% of the gain on Schedule A and caps the withholding at the net proceeds after mortgages not made in contemplation of the sale on Schedule B.
The form still applies a 5% figure although the 2026 rate is 4%, so any excess comes back on the nonresident return, Form 80-205, or through the refund claim the statute provides. An exchanging seller should have the closing attorney document the exchange in the file so that no withholding is taken from funds that must reach the qualified intermediary.
Mississippi's own statute, not federal piggybacking, defers the gain
Unlike states that start from federal adjusted gross income, Mississippi computes its own gross income, so its treatment of exchanges has to be found in Mississippi law. Miss. Code § 27-7-9(f)(1)(A) does two things: it restates the like-kind rule for property held for productive use or investment, and it adds that no gain or loss is recognized on any exchange if none is recognized under IRC § 1031.
That second sentence ties Mississippi to the federal result, including the real-property-only definition and the identification and closing deadlines described on our eligibility page. If the federal exchange works, the Mississippi exchange works; if boot is taxed federally, Mississippi taxes it at 4%.
The statute also repeats the federal carve-out for stock in trade and property held primarily for sale, along with stocks, bonds, notes and other securities. A Mississippi builder's spec houses or a dealer's lots therefore get no deferral from the state any more than from the IRS, while a rental house, a shopping center or timberland held for investment does.
Mississippi has no claw-back. Once the exchange closes, the state does not follow deferred gain into replacement property in Alabama, Texas or anywhere else.
Form 80-205: where a nonresident's Mississippi sale, or exchange, is reported
A nonresident who sells Mississippi real property reports the result on Form 80-205, the Non-Resident and Part-Year Resident Return, and claims any amount paid in under § 27-7-308 there. For a completed exchange there is no gain to report, which is why the withholding exclusion for exchanges matters: it keeps a nonresident from lending the state 5% of the amount realized and waiting a year to get it back.
If part of the transaction is taxable, for example cash boot retained at closing, the recognized portion is reported on the same return at the flat rate, 4% for tax year 2026. Mississippi residents report the whole transaction on the resident return the same way, with the exchange simply producing no recognized gain.
No transfer tax, but rental property carries a 15% assessment ratio
Mississippi imposes no state or county real estate transfer tax; the deed to your buyer costs recording fees only, and the exchange has nothing to change in that respect.
Property tax works through assessment ratios fixed in Section 112 of the Mississippi Constitution and Miss. Code § 27-35-4. Class I, single-family owner-occupied residential property, is assessed at 10% of true value. Class II, all other real property, which includes every rental house, apartment building, office and farm you do not live on, is assessed at 15%.
The classes ride with the property's use, not its sale price, so a buyer of your rental steps into the same 15% ratio you paid on. If you buy Mississippi replacement property to live in, it moves to Class I; if you keep it as an investment, it stays at 15%.
Replacement property
A DST replacement while Mississippi's rate falls toward zero
For a Mississippi seller, exchanging into a Delaware Statutory Trust satisfies § 27-7-9(f) as long as the federal exchange qualifies, and because the transaction is an exchange the § 27-7-308 withholding does not attach to the sale proceeds.
A Mississippi resident then reports DST rental income to Mississippi at the flat rate, which is 4% for 2026 and lower afterward, and may need nonresident returns in whichever states hold the DST's properties. Whether Mississippi's credit for taxes paid to those states covers the overlap is something to work through with your CPA using the sponsor's state-by-state income breakdown.
Because Mississippi has no claw-back and a rate headed toward zero, a nonresident who exchanges Mississippi land into a DST leaves the state's income tax behind for that gain, while a resident's future exposure depends on where the rate schedule stands when the DST sells. Confirm the current rate and the withholding rules with the Mississippi Department of Revenue before closing, and compare cash-out DST and other investment types if you want partial liquidity.
Questions investors ask about 1031 exchanges in Mississippi
Is Mississippi's 5% withholding taken when I sell through a 1031 exchange?
The statute applies to a sale 'not considered an exchange or trade,' so a qualifying exchange is outside it. Make sure the closing file documents the exchange so the closing attorney does not withhold by default.
What rate will Mississippi charge if my exchange fails and the sale is taxable in 2026?
4% on taxable income over $10,000, the flat rate for tax year 2026. Gain on real estate has no preferential rate in Mississippi.
I kept $40,000 of cash at closing in my Mississippi exchange. What does the state do with it?
Whatever gain the IRS recognizes on that boot, Mississippi recognizes too, because § 27-7-9(f)(1)(A) follows the federal result. For 2026 it is taxed at the flat 4% rate on the Mississippi return.
Does Mississippi charge a transfer or deed tax when I sell?
No. Mississippi has no real estate transfer tax; only recording fees apply.
Why is my rental assessed at 15% when my home is assessed at 10%?
Section 112 of the Mississippi Constitution puts owner-occupied single-family homes in Class I at 10% of true value and all other real property in Class II at 15%.
Does Mississippi follow the federal exchange rules exactly?
Yes. Miss. Code § 27-7-9(f)(1)(A) recognizes no gain on an exchange whenever none is recognized under IRC § 1031, so the federal outcome controls.
Will Mississippi ever tax the deferred gain if I buy replacement property in another state?
No. Mississippi has no claw-back provision and never revisits the gain once it has moved to property in another state.
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 Mississippi tax agency before you close. This page is general information, not tax or legal advice.
- Miss. Code § 27-7-9, Gain or loss on disposition of property (FindLaw)
- Miss. Code § 27-7-308, Withholding on sale of real property by nonresidents (FindLaw)
- Mississippi DOR Form 89-386, Affidavit for Withholding Income Tax on Sale of Real Estate by Non-Resident (Rev. 10/25)
- Mississippi House Bill 1 (2025), Build Up Mississippi Act, signed text
- Mississippi Constitution of 1890, Section 112 (Secretary of State)
- Miss. Code § 27-35-4, Assessment ratios by class (FindLaw)
- First American Exchange Company, 1031 Exchanges in Mississippi (No Transfer Tax)
- Mississippi DOR, Individual Income Tax Forms (Form 80-205)