The short answer
Utah follows the federal treatment of a 1031 exchange: Form TC-40 opens with federal adjusted gross income, so gain that Section 1031 defers federally is absent from the Utah return too, where it would otherwise be taxed at a flat 4.5 percent. Utah has no withholding on real estate sales, no transfer tax and no rule that reaches back to deferred gain once the replacement property is located elsewhere. A Utah seller exchanging into a DST should expect nonresident returns in the states where the DST's properties sit, while Utah, as your home state, taxes the same income and credits the tax paid elsewhere.
Utah at a glance
| State tax rate on the gain | Flat 4.5% for tax years from January 1, 2025, per the Tax Commission's rate table |
|---|---|
| Conformity to §1031 | Yes; Form TC-40 begins with federal adjusted gross income, so deferred gain never enters |
| Withholding at closing | None on real estate sales; pass-through entities withhold on nonresident members |
| Deferred-gain claw-back | None; Utah does not track gain deferred into other states |
| Real estate transfer tax | None; no deed or transfer tax appears among the taxes the Tax Commission administers |
| Property assessment | Fair market value as of January 1 each year (Utah Code 59-2-103); no purchase-price cap |
| Residential exemption | 45% off value for primary residences, including a rental that is a tenant's primary home |
| Farmland rollback | Up to five years of tax difference when greenbelt land is withdrawn (Utah Code 59-2-506) |
Utah's flat 4.5 percent tax rides on the federal return, so the deferral carries over
Utah taxes individual income at a single rate: 4.5 percent for tax years beginning January 1, 2025 and, according to the Tax Commission's current rate table, for 2026 filings as well, down from 4.55 percent in 2024 and 4.65 percent in 2023. Selling a Salt Lake City fourplex outright puts the federal gain and recapture into Utah income at that rate.
Form TC-40 takes federal adjusted gross income as its first line, and the instructions tell filers to report it exactly as it appears on the federal return. Gain that a 1031 exchange leaves out of federal AGI never reaches the Utah return, so the state deferral is automatic; there is no Utah election, addback or schedule for the exchange.
Nonresidents who own Utah rentals must file TC-40 with Schedule TC-40B if they have Utah-source income and a federal filing requirement, apportioning the Utah share. A nonresident whose only Utah income came through a partnership or LLC that withheld Utah tax for them under the pass-through withholding rules in Publication 68 is excused from filing.
No closing withholding, no transfer tax, no claw-back
Utah has no real estate withholding program: a title company does not hold back state tax from a resident or nonresident seller's proceeds, so the full net amount moves to the qualified intermediary. The one withholding that touches rental owners is entity-level, where a partnership, LLC taxed as a partnership or S corporation withholds Utah tax on nonresident individual members' share of Utah income. Publication 68 extends the same duty to estates and trusts that must pass income through, so a trust holding Utah rentals for out-of-state beneficiaries withholds as well.
Utah levies no real estate transfer, deed or mortgage tax; none appears in the Tax Commission's list of every tax and fee it administers. Neither the deed on your relinquished property nor the deed on Utah replacement property carries a state stamp.
Utah also has no deferred-gain tracking. Unlike California, which requires Form FTB 3840 every year after California property is exchanged for out-of-state property, Utah does not follow gain that leaves the state; once the replacement property is elsewhere, Utah's claim on the deferred gain rests only on your continuing residency.
Market value every January 1, the 45 percent residential exemption and tenant-occupied rentals
Utah Code 59-2-103 requires all taxable property to be assessed at fair market value as of January 1, with no cap tied to the purchase price, so a sale at a new price is evidence the county assessor can use in the next year's valuation. The Truth in Taxation process constrains rates, not values.
The same section grants a residential exemption of 45 percent of value, so qualifying property is taxed on 55 percent. It is not limited to owner-occupants: an owner of multiple properties receives the exemption for each residential property that is the primary residence of a tenant, up to one acre per unit, and part-year residential use qualifies after 183 consecutive days, on filing the signed residential property declaration (PT-19A or PT-19B) with the county assessor.
Property used for transient residential use, meaning short-term rentals, and second homes not occupied as anyone's primary residence do not qualify and are taxed at 100 percent of value. When you buy Utah replacement property that is a long-term rental, file the declaration promptly; when you buy a nightly rental, model the tax at full value.
Farmland Assessment Act rollback reaches five years back
Land assessed under the Farmland Assessment Act, Utah's greenbelt, is valued on agricultural productivity, and Utah Code 59-2-506 imposes a rollback tax when land is withdrawn: the difference between the tax paid and the tax that would have been paid at market value, for a period beginning up to five years before the assessor's notice. The owner must notify the assessor within 120 days of withdrawal or face a penalty.
A seller exchanging out of greenbelt land into a DST leaves the rollback question to the buyer's change of use, but a buyer of Utah replacement land who intends to develop it inherits that exposure and should price it.
The capital gains transactions credit is not a substitute for an exchange
Utah offers a nonrefundable credit equal to 4.5 percent of a capital gain if at least 70 percent of the gross proceeds are used within 12 months to buy stock in a qualified Utah small business corporation in which the seller had no prior ownership interest. It is claimed with code 04 on TC-40A and cannot be carried forward or back.
It offsets only the Utah tax, leaves the federal tax untouched, and requires an equity investment in an operating company, so it suits a very different investor than a DST. Sellers who want passive real estate exposure and full deferral use the exchange.
Replacement property
Exchanging Utah property for a DST interest
A Utah seller can identify a Delaware statutory trust interest as replacement property because Revenue Ruling 2004-86 treats a qualifying DST interest as ownership of the underlying real estate itself. Breakwater Exchange works with vetted national sponsors on traditional DSTs and cash-out DSTs, and the eligibility rules are the federal ones.
As a Utah resident you report your share of the DST's income on TC-40 at 4.5 percent wherever the property sits, and Utah's other-state tax credit keeps that income from being taxed twice. The states where the properties are located generally tax that income at source, so a DST spread across several income-tax states can mean several nonresident returns; the credit prevents double taxation but not the filing work.
Utah's own claim on the deferred gain does not follow you into the DST. Utah has no provision reaching back to gain deferred out of state, so if you cease to be a Utah resident before the DST's property sells, the eventual gain is a question for the property's state; ask your CPA and the Tax Commission to confirm the timing before you move.
Questions investors ask about 1031 exchanges in Utah
What rate does Utah apply to the gain on an investment property if I do not exchange?
A flat 4.5 percent of the gain included in your federal adjusted gross income, the rate the Tax Commission lists for tax years beginning January 1, 2025 onward.
Does Utah withhold state tax at closing when a nonresident sells Utah real estate?
No. Utah has no real estate withholding, so nothing is held back at closing; the nonresident files TC-40 with Schedule TC-40B for the year of sale if there is Utah-source income to report.
Is there a Utah transfer tax on the deed to my buyer?
No. Utah has no real estate transfer or deed tax; no such tax appears on the Tax Commission's list of the taxes it administers.
Does my Utah rental keep the 45 percent residential exemption after I sell it?
It can, if the buyer keeps it as a tenant's primary residence and files the residential property declaration with the county assessor; a buyer converting it to a short-term rental loses the exemption and pays on 100 percent of value.
Does Utah require any report tracking the gain I defer into an out-of-state DST?
No. Utah has no equivalent of California's Form FTB 3840; your only ongoing filings are your Utah return as a resident and any nonresident returns the DST's property states require.
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 Utah tax agency before you close. This page is general information, not tax or legal advice.
- Utah State Tax Commission, Individual Income Tax Rates
- Utah State Tax Commission, TC-40 General Instructions (who must file, nonresidents, federal AGI)
- Utah State Tax Commission, Publication 68: Pass-through Entity Withholding
- Utah State Tax Commission, Capital Gains Transactions Credit
- Utah State Tax Commission, Primary Residential Exemption
- Utah Code 59-2-103, Rate of assessment of property; residential property
- Utah Code 59-2-506, Rollback tax (Farmland Assessment Act)
- Utah State Tax Commission, Descriptions of All Utah Taxes and Fees