The short answer
North Carolina starts its income tax from federal figures, so gain deferred under §1031 is not taxed by the state in the year of the exchange, and any gain you later recognize is taxed at the flat 3.99% rate that applies for 2026. The state does not withhold tax at closing when a nonresident sells; instead the buyer files Form NC-1099NRS within 15 days and the seller reports the transaction on a Form D-400. The $1-per-$500 excise stamp tax is still due on the deed for the relinquished property.
North Carolina at a glance
| State tax on real estate gains | Flat 3.99% for tax year 2026 (4.25% in 2025, 4.50% in 2024); no capital gains rate |
|---|---|
| Rates after 2026 | Further reductions possible from 2027 under revenue triggers in Session Law 2023-134 |
| Closing withholding | None; the buyer files Form NC-1099NRS within 15 days when the seller is a nonresident |
| The 4% rule | G.S. 105-163.3 withholding covers nonresident contractors' service pay, not property sales |
| Excise stamp tax | $1 per $500 of consideration (0.2%), paid by the transferor before the deed is recorded |
| Deferred-gain tracking | None; no North Carolina report follows gain into out-of-state replacement property |
| Reappraisal | Counties reappraise at least every 8 years; counties of 75,000+ advance it if ratios drift |
| Present-use value land | A disqualifying transfer makes 3 fiscal years of deferred taxes plus interest due |
No withholding at closing: the buyer files NC-1099NRS and the nonresident seller files a D-400
North Carolina does not require a closing attorney or buyer to hold back any part of a nonresident seller's proceeds. What the state requires instead is information: whoever buys North Carolina real property from a nonresident individual, partnership, estate or trust must file Form NC-1099NRS with the Department of Revenue within 15 days of closing and give the seller a copy.
The form reports the seller's name, address and tax identification number, the property location, the closing date and the gross sales price including associated tangible personal property, and it can be filed through the Department's eNC3 application. Its instructions then put the burden on the seller: any gain recognized for federal purposes on North Carolina real property is also subject to North Carolina tax, so a nonresident who sells must file a North Carolina return.
In a completed exchange no gain is recognized federally, so nothing from the sale flows onto Form D-400 and Schedule PN, but the NC-1099NRS still gets filed because it reports the gross price, not the gain. Keep the copy; it is the document the Department will match against your return.
The 4% figure investors sometimes hear about comes from G.S. 105-163.3, which requires payers to withhold 4% from compensation paid to nonresident contractors and ITIN contractors for personal services once payments pass $1,500 in a year. It applies to service fees, not to the price paid for real estate.
A recognized gain is taxed at 3.99% in 2026, and the rate may keep falling
North Carolina applies one flat rate to all taxable income, with no separate capital gains schedule: 4.50% for 2024, 4.25% for 2025 and 3.99% for tax years beginning in 2026. Gain from a rental or commercial property that you recognize, whether by selling for cash or by receiving boot in an exchange, is taxed at that year's rate.
The Department of Revenue notes that additional rate changes may apply from 2027 under the rate-reduction triggers in Session Law 2023-134, which tie future cuts to revenue targets. For an investor weighing a cash sale against an exchange, the state tax is already small next to the federal liabilities the exchange also defers, so the trigger schedule is a footnote rather than the decision.
Because the state starts from federal figures, the tests on our eligibility requirements page determine what North Carolina taxes; the state adds no like-kind test of its own.
The $1-per-$500 excise stamp tax is the seller's cost on the relinquished deed
G.S. 105-228.30 levies an excise tax of $1 on each $500, or fraction of $500, of the consideration or value of the interest conveyed, and the transferor must pay it to the register of deeds before the instrument is recorded. Half stays with the county and half goes to the state General Fund.
A deed delivered as part of a like-kind exchange is a conveyance for consideration like any other, so the stamps are due on the full price of the relinquished property. On a $2 million sale that is $4,000 charged to the seller at closing, and routing the proceeds through a qualified intermediary changes neither who pays nor how much.
If you acquire North Carolina real estate as replacement property, the seller of that property owes the stamps, not you.
Present-use value farmland can trigger three years of rollback taxes when it changes hands
Agricultural, horticultural and forestland enrolled in North Carolina's present-use value program is taxed on its use value, and the difference from market-value tax is deferred and carried as a lien on the land under G.S. 105-277.4. When the land loses eligibility through a disqualifying event, the deferred taxes for the preceding three fiscal years become due with interest.
A sale to a buyer who does not or cannot continue the qualifying use is the classic disqualifying event. If you are exchanging out of enrolled farmland, the rollback is a cost that §1031 does not defer, so settle with the county assessor and the buyer, before closing, who bears it and whether the buyer will apply to keep the classification.
The same statute treats conveyances to nonprofits, governmental units and the United States differently, apportioning the deferred taxes by comparing the sale price with the property's fair market value.
Eight-year reappraisal cycles, not the sale itself, reset North Carolina assessments
North Carolina counties must reappraise all real property at least every eight years under G.S. 105-286, and boards of commissioners may advance the cycle by resolution. Counties with populations of 75,000 or more must advance it when the county's sales assessment ratio falls below 0.85 or rises above 1.15.
For an exchange buyer of North Carolina property the practical point is that the assessed value does not jump to your purchase price at closing. It moves at the county's next reappraisal, which is why the year of the last reappraisal and the county's stated cycle belong in your underwriting of any North Carolina replacement property.
North Carolina has no deferred-gain tracking rule for out-of-state replacement property
Unlike California, Massachusetts, Montana and Oregon, North Carolina does not require an annual report of gain deferred on North Carolina property that was exchanged into real estate elsewhere. A nonresident who exchanges out of Charlotte or the Outer Banks into real estate in another state files nothing further with North Carolina for that asset.
A North Carolina resident who later sells the replacement property for cash pays North Carolina tax on the whole recognized gain at that year's flat rate, since residency brings every dollar of income onto the D-400, offset by a D-400TC credit for whatever the property's state charged.
Replacement property
For a North Carolina resident, DST income from other states is taxed here at 3.99% with a D-400TC credit
DST sponsors typically hold property outside North Carolina, and the rental income and any gain on sale of those buildings are sourced to the states where they are located. A North Carolina resident who exchanges into such a DST reports the income on the D-400 at the flat rate and claims the D-400TC credit for what the other state charged, which cannot exceed the North Carolina tax on that income; a property in a state with no income tax produces no credit, so the full 3.99% applies.
A nonresident of North Carolina who exchanges out of North Carolina property into an out-of-state DST leaves the North Carolina system: no NC-1099NRS on the DST side, no Schedule PN income, and no North Carolina tax on later DST distributions or a future taxable sale.
The exchange mechanics are the same as with any replacement property; the traditional DST page covers the structure and the investment types page the alternatives. Have your CPA run the D-400TC computation and check any sourcing question against the Department of Revenue's guidance.
Questions investors ask about 1031 exchanges in North Carolina
Will the closing attorney withhold North Carolina tax if I live out of state and sell through an exchange?
No. North Carolina has no real estate withholding; the buyer files Form NC-1099NRS within 15 days reporting the gross price, and you report the transaction on your own return. The 4% withholding in G.S. 105-163.3 is for payments to nonresident contractors for services.
Does the excise stamp tax still apply when my proceeds go to a qualified intermediary?
Yes. The $1 per $500 tax is on the conveyance itself and is paid by the transferor before recording; holding the proceeds under the qualified intermediary rules does not change the deed or the tax.
I own enrolled farmland. Does exchanging out of it trigger present-use value rollback?
If the transfer is a disqualifying event, the deferred taxes for the preceding three fiscal years plus interest come due. Whether your buyer can keep the classification is a question for the county assessor before you sign.
What rate applies if I later cash out of a DST as a North Carolina resident?
The flat rate in effect that year, 3.99% for 2026 and possibly lower after 2027, on the full recognized gain, with a D-400TC credit for the property state's own tax.
Does the NC-1099NRS need to show that the sale was a 1031 exchange?
No. The form reports the gross sales price, the closing date, the deed book and page and the parties, and asks only whether the property was a personal residence. Your D-400 and federal Form 8824 are where the deferral is documented.
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 North Carolina tax agency before you close. This page is general information, not tax or legal advice.
- Tax Rate Schedules, North Carolina Department of Revenue
- Form NC-1099NRS, Report of Sale of Real Property by Nonresidents
- G.S. 105-228.30, excise tax on conveyances
- G.S. 105-286, time for general reappraisal of real property
- G.S. 105-277.4, present-use value deferred taxes
- G.S. 105-163.3, withholding from nonresident contractors
- Credit for income tax paid to another state or country, NCDOR
- Nonresidents and part-year residents, NCDOR