1031 Exchange in North Dakota: Low Rates, Mineral Rights, No Deed Tax

North Dakota's 40% long-term gain exclusion caps the state tax on a recognized gain at 1.5%

North Dakota computes tax from federal taxable income under N.D.C.C. § 57-38-30.3, which then reduces that income by 40% of the excess of net long-term capital gain over net short-term capital loss. The remaining 60% is taxed on a three-bracket schedule whose top rate is 2.5%, so the most the state can take from a long-term gain is 1.5%.

For tax year 2025 the brackets published by the Office of State Tax Commissioner are 0% up to $48,475 of taxable income for a single filer ($80,975 married filing jointly), 1.95% up to $244,825 ($298,075 joint) and 2.5% above that. The thresholds are indexed each year, and the 2026 schedule keeps the same three rates.

This is why a North Dakota seller's decision to exchange is driven almost entirely by federal tax. The state's share of a $500,000 long-term gain is at most $7,500 (60% of the gain at 2.5%), while the federal bill the exchange defers, capital gains tax plus depreciation recapture, runs several times that. The deferral still applies to the state tax, since gain not recognized federally never enters federal taxable income; the mechanics are on our page on the exchange basics.

No transfer tax and no closing withholding: the deed needs only a Statement of Full Consideration

North Dakota imposes no deed, documentary or transfer tax. What N.D.C.C. § 11-18-02.2 requires is that the grantee certify on the face of the deed either the full consideration paid or one of the listed exemptions; the county recorder may not record a deed without it, and willfully falsifying the consideration is a class B misdemeanor.

The statement feeds the assessor's sales data rather than a tax bill. Exempt transactions include transfers between family members or corporate affiliates, estate settlements, forced sales and foreclosures, quitclaim deeds and agricultural land of less than eighty acres. An exchange deed to a buyer at full price is not exempt, so the price will appear on the deed.

Nor does the state withhold anything from a nonresident seller's proceeds. The only North Dakota withholding regimes that touch real estate investors are the pass-through entity withholding on nonresident owners' distributive shares under § 57-38-31.1, at the highest individual rate once a share reaches $1,000, and the oil and gas royalty withholding described below.

Mineral rights ride with the land or stay behind, and the choice shapes the exchange

In western North Dakota the mineral estate is often worth more than the surface, and it is commonly severed. Under Treasury Regulation §1.1031(a)-3, unsevered natural deposits, including mines, wells and mineral interests, are real property, while oil, gas and other minerals cease to be real property once extracted.

That gives a seller three paths: convey the surface and minerals together as one relinquished property, reserve the minerals and exchange only the surface, or exchange a mineral or royalty interest by itself into other real estate. Each is an exchange of real property under the federal definition, but the value you must replace, and the debt you must match, changes with what you convey; the federal side is covered on our eligibility page.

If you keep a royalty interest and later move out of state, N.D.C.C. § 57-38-59.4 requires the remitter to withhold North Dakota income tax from royalty payments to nonresident owners, at a rate the statute ties to the top individual bracket, with exemptions for governments, tribes on reservation production, exempt organizations and small remitters.

Farmland is assessed on productivity, so a sale does not reset its North Dakota value

Agricultural land in North Dakota is not valued at market. N.D.C.C. § 57-02-27.2 defines the true and full value of agricultural lands as their agricultural value, the capitalized average annual gross return, computed county by county from productivity data and then applied by local assessors. Assessed value is 50% of true and full value, and agricultural and commercial property are taxed on 10% of assessed value, residential on 9%.

For an investor that means the price paid in an exchange for cropland or pasture does not move the tax bill the way a market-based reassessment would elsewhere. It also means a buyer should model property tax from the county's agricultural value tables rather than from the purchase price.

The anti-corporate-farming law limits who can hold North Dakota farmland as replacement property

N.D.C.C. § 10-06.1-02 prohibits corporations and limited liability companies, except as the chapter allows, from owning or leasing farmland or ranchland or engaging in farming or ranching. The exceptions are narrow: family farm corporations and LLCs that meet the chapter's ownership tests, and, under § 10-06.1-12.2, authorized livestock farm entities with no more than ten shareholders or members, most of whom must be actively engaged in farming or ranching.

An individual, a partnership or a trust exchanging into North Dakota farmland is outside the prohibition, but an investor who holds property through an LLC needs counsel to confirm the entity can take title. It is a state-specific hurdle that a qualified intermediary will not resolve for you.

No deferred-gain tracking once the replacement property leaves North Dakota

North Dakota has no form or statute that follows gain deferred on North Dakota property into replacement property elsewhere. A nonresident who exchanges out of a Fargo apartment building into real estate elsewhere has nothing more to file in Bismarck for that asset and owes North Dakota nothing on a later taxable sale.

A North Dakota resident stays taxable on all income, so a later cash sale of the replacement property is taxed here, after the 40% exclusion, and the credit the Tax Commissioner lists for income tax paid to another state or local jurisdiction offsets what the property's state charged.