The short answer
Ohio's IT 1040 begins with federal adjusted gross income, which means a completed §1031 exchange produces no Ohio-taxable gain in the exchange year. Gain you do recognize is taxed at Ohio's new flat 2.75% rate on nonbusiness income above $26,050 for 2026, or at 3% on business income beyond the $250,000 business income deduction if your rental activity rises to a trade or business. Ohio withholds nothing at closing and keeps no record of deferred gain, but the conveyance fee of up to $4 per $1,000 is due on the relinquished deed.
Ohio at a glance
| State tax on real estate gains | Flat 2.75% above $26,050 for 2026; the top bracket was 3.125% in 2025 and 3.5% in 2024 |
|---|---|
| Business income | First $250,000 deductible ($125,000 married filing separately); remainder taxed at 3% |
| Closing withholding | None; a nonresident with recognized gain files IT 1040 and claims the nonresident credit |
| Conveyance fee | $1 per $1,000 state fee plus county transfer tax up to $3 per $1,000, paid by the grantor |
| Municipal income tax | Rental net profit taxed only where the property sits and where the owner lives (718.02(E)) |
| CAUV farmland | Conversion recoups the tax savings of the three preceding tax years (R.C. 5713.34) |
| Deferred-gain tracking | None; Ohio does not follow deferred gain into out-of-state replacement property |
Ohio's 2.75% flat rate reaches recognized gain in 2026, while business income pays 3% after $250,000
House Bill 96 finished Ohio's move to a single rate. For taxable years beginning in 2026, nonbusiness income above $26,050 is taxed at 2.75% under R.C. 5747.02, down from a 3.125% top bracket for 2025 and 3.5% for 2024. Ohio has no separate capital gains rate, so gain you recognize on a rental or commercial property is simply added to nonbusiness income.
Business income is handled separately. R.C. 5747.01 lets an individual deduct the first $250,000 of business income ($125,000 if married filing separately), and R.C. 5747.02 taxes the remainder at a flat 3%. Business income includes income and gain from real property when its acquisition, rental, management and disposition are integral parts of a regular trade or business, so an investor who runs rentals as a business may find the gain on sale is business income.
Which bucket your gain lands in changes the math: 3% after a $250,000 deduction can be lower or higher than 2.75% with no deduction, depending on the size of the gain. That is a question for your CPA, and it only arises if gain is recognized; a completed exchange keeps the gain off the IT 1040 because the Ohio computation starts from the federal figure.
The conveyance fee runs up to $4 per $1,000 and has no exemption for like-kind exchanges
Every deed recorded in Ohio passes through the county auditor, who collects a conveyance fee of $1 per $1,000 of value under R.C. 319.54(G)(3). Counties may add a real property transfer tax of up to 30 cents per $100, or $3 per $1,000, under R.C. 322.02, and both are levied on the grantor, so the seller of the relinquished property pays up to 0.4% of the price.
The exemption list in R.C. 319.54(G)(3) covers transfers such as gifts between spouses, parents and children, corporate reorganizations, court-ordered transfers and conveyances for less than $100. A sale to an exchange buyer for full value fits none of them, and the Franklin County Auditor's published exemption list likewise has no line for IRC §1031, so budget the fee on the relinquished sale and expect the seller to pay it on any Ohio replacement property you buy.
The grantee files the statement of value the tax commissioner prescribes before the auditor endorses the deed, which is also how the sale price enters the county's records.
Ohio municipalities tax rental net profit where the property sits and where you live
Ohio is unusual in letting cities and villages levy their own income taxes, and Chapter 718 brings rental real estate into that base. An individual's municipal taxable income includes net profit reported on federal Schedules C, E and F, and R.C. 718.02(E) provides that net profit from rental real estate owned directly by an individual or through a disregarded entity is taxable only by the municipality where the property is located and the one where the owner resides.
So the rent from an Ohio property is exposed to up to two municipal taxes in the years before the exchange, on top of the state tax.
Chapter 718 exempts intangible income, defined to include capital gains from intangible property, but that definition does not mention real estate. How your municipality treats the gain on the building itself, and whether DST distributions count as rental net profit, should be confirmed with your CPA and the municipal tax administrator before you rely on any assumption.
CAUV farmland recoups three years of tax savings when the land is converted
Farmland valued at its current agricultural use value pays tax on a formula value well below market. R.C. 5713.34 imposes a charge when the land is converted equal to the tax savings during the three tax years immediately preceding the conversion.
The trigger is conversion out of agricultural use, not the deed itself, but a sale to a buyer who will develop the land produces the charge. If you are exchanging out of CAUV acreage, address in the contract who bears the recoupment, because the exchange defers income tax on the gain and does nothing about a property tax charge.
Ohio values are otherwise reset on the county auditor's schedule: a full reappraisal at least once in each six-year period under R.C. 5713.01 and an update in the third calendar year after it under R.C. 5715.24.
Ohio holds back nothing at closing and never tracks deferred gain after you leave
Ohio has no statute that holds back tax from a nonresident's sale proceeds at closing. A nonresident who recognizes gain on Ohio property files an IT 1040 and claims the nonresident credit under R.C. 5747.05(A) for income not allocable to Ohio; a nonresident who completes an exchange recognizes nothing and has no Ohio tax on the sale.
Ohio also has no tracking form for gain deferred on Ohio property that is exchanged into real estate elsewhere. Once the replacement property is outside Ohio, a nonresident's later taxable sale is reported to the state where that property sits, not to Columbus.
An Ohio resident who exchanges out of state remains taxable by Ohio on any gain later recognized, at whatever rate applies then, with the resident credit under R.C. 5747.05(B) for tax the other state charges on the same income. The federal identification and closing windows are the same in every state; the 45-day and 180-day rules are covered separately.
Replacement property
A DST moves an Ohio seller's rental income to the property's state, taxed here at 2.75% with a resident credit
DST properties are usually outside Ohio, and the rental income they produce is sourced to whichever states the buildings are in. An Ohio resident who exchanges into a DST reports that income on the IT 1040 at 2.75%, or as business income if it qualifies, and claims the resident credit under R.C. 5747.05(B) for income tax the property's state imposes; where that state has no income tax, Ohio's rate applies in full.
For a nonresident selling Ohio property, a DST elsewhere ends Ohio's involvement: no Ohio return for the DST income and nothing owed to Ohio if the DST interest is eventually sold for cash. Whether an Ohio municipality reaches DST distributions to a resident depends on whether they are treated as rental net profit under Chapter 718, which is worth asking before you invest.
How these programs are structured is described under traditional DST, and the liquidity variant under cashing out of a DST. Sourcing and the resident credit are for your CPA to confirm, with the Ohio Department of Taxation as the reference.
Questions investors ask about 1031 exchanges in Ohio
Does Ohio's business income deduction apply to the gain when I sell a rental?
Only if your rental activity is a trade or business under R.C. 5747.01(B), which counts income and gain from real property whose acquisition, rental, management and disposition are integral to the business. If it qualifies, the first $250,000 of business income is deducted and the rest is taxed at 3%; if not, the gain is nonbusiness income taxed at 2.75% for 2026.
Is a 1031 exchange exempt from the Ohio conveyance fee?
No. The $1 per $1,000 state fee and any county transfer tax of up to $3 per $1,000 apply to a deed given for consideration, and neither statute lists like-kind exchanges among the exemptions.
Will my city tax the rent from my Ohio rental before I exchange out of it?
Yes. Net profit on Schedule E is part of municipal taxable income, and R.C. 718.02(E) limits the tax to the municipality where the property is located and the one where you live.
Does the CAUV recoupment come due when I exchange out of Ohio farmland?
It comes due when the land is converted from agricultural use, and the charge equals the tax savings for the three preceding tax years. A buyer who keeps farming may avoid it; a buyer who develops the land will not.
Does Ohio hold back any tax when an out-of-state investor sells Ohio property?
No. There is no Ohio withholding statute for real estate closings and no tracking of deferred gain; a nonresident reports any recognized gain on an IT 1040 with the nonresident credit for non-Ohio income.
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 Ohio tax agency before you close. This page is general information, not tax or legal advice.
- R.C. 5747.02, tax rates (current as of January 1, 2026)
- R.C. 5747.01, definitions including business income and the business income deduction
- R.C. 5747.05, nonresident and resident credits
- R.C. 319.54, county auditor fees including the conveyance fee
- R.C. 322.02, county real property transfer tax
- R.C. 718.02, municipal income tax on rental net profit
- R.C. 5713.34, CAUV recoupment charge
- R.C. 5713.01, six-year reappraisal