The short answer
West Virginia follows federal Section 1031, so a qualifying exchange defers the state's 2026 personal income tax of up to 4.58% on the gain. The state's distinctive step comes at closing: a nonresident seller's closing agent must withhold 2.5% of the total payment or 4.58% of the estimated gain unless the seller has obtained a certificate of exemption on Form NRAE at least 21 days before closing. The state and county transfer excise taxes, paid by the grantor, remain due.
West Virginia at a glance
| 2026 top income tax rate | 4.58% on taxable income over $60,000 (Senate Bill 392, W. Va. Code § 11-21-4j) |
|---|---|
| Nonresident closing withholding | 2.5% of total payment or 4.58% of estimated gain (TSD-389, revised April 2026) |
| Exemption route for exchangers | Form NRAE, received by the Tax Division at least 21 days before closing |
| Withholding return | Form NRSR (WV/NRSR), filed with payment within 30 days of withholding |
| Transfer excise tax | $1.10 per $500 state plus $0.55 to $1.65 per $500 county, paid by the grantor |
| Affordable Housing Fund fee | $20 on each transfer for consideration |
| Property tax assessment | 60% of fair market value as of July 1 each year |
| Claw-back of deferred gain | None |
Nonresident sellers face withholding at the courthouse unless Form NRAE is approved first
West Virginia collects income tax from a nonresident seller before the deed is recorded. Under W. Va. Code § 11-21-71b and the Tax Division's TSD-389, the person responsible for reporting the closing must withhold either 2.5% of the total payment to the seller or 4.58% of the estimated capital gain, and the clerk will not record the deed until that is done.
'Total payment' is the price less mortgage debt paid off at closing and the seller's settlement-statement expenses, so the 2.5% figure is measured on net proceeds rather than the gross price. On a $1,000,000 sale with a $400,000 payoff, that is $15,000 withheld from money the exchanger intended to send to the qualified intermediary.
A seller structuring an exchange avoids this by applying for a certificate on Form NRAE, the Application for Certificate of Full or Partial Exemption. TSD-389 requires the Tax Division to receive it no later than 21 days before the closing date, and the certificate then states that no tax, or a reduced amount, is due on the transaction.
If withholding happens anyway, the closing agent remits it on Form NRSR (often cited as WV/NRSR) within 30 days, and the seller can seek an early refund on Form NRER between 30 days after the transfer and December 15 of the sale year. No withholding is due when the seller is a West Virginia resident, a resident entity or a nonresident entity holding a current West Virginia business registration certificate.
West Virginia's 2026 rate cut lowers the top rate on real estate gains to 4.58%
West Virginia taxes capital gains as ordinary income starting from federal adjusted gross income, and the rates dropped again this year. Senate Bill 392, signed March 31, 2026 and applied retroactively to January 1, 2026, cut every bracket by 5% and codified the new schedule in W. Va. Code § 11-21-4j.
For tax year 2026 the brackets are 2.11% on the first $10,000, 2.81% to $25,000, 3.16% to $40,000, 4.22% to $60,000 and 4.58% above $60,000. In 2025 the same brackets ran 2.22%, 2.96%, 3.33%, 4.44% and 4.82%, so a $500,000 gain recognized this year costs about $1,150 less in state tax than the same gain a year earlier.
The Tax Division's withholding rate on estimated gain, 4.58%, equals the new top bracket, so withholding on a fully taxable sale roughly matches the tax that would be owed; the exemption on Form NRAE is what removes it for a deferred sale. The federal side of the deferral follows the eligibility rules that apply everywhere.
The state and county transfer excise taxes are the grantor's, exchange or not
W. Va. Code § 11-22-2 imposes an excise tax on the privilege of transferring real estate of $1.10 for each $500 of value for the state, plus a county excise of $0.55 per $500 that a county commission may raise to as much as $1.65 per $500 after public notice. The grantor pays unless the grantee accepts the deed without payment.
A separate $20 fee on each transfer for consideration goes to the Affordable Housing Fund. The combined cost therefore runs from $1.65 to $2.75 per $500, or 0.33% to 0.55% of value, and none of it is excused because the sale is one leg of a 1031 exchange.
Mineral, gas and timber interests are real property that the Tax Commissioner values
West Virginia property tax is assessed at 60% of fair market value as of July 1 each year, and the county assessor's ordinary role stops at the surface. The Tax Division states that the Tax Commissioner determines the value of natural resource real property and of industrial real and personal property, so producing oil and gas, coal and managed timberland carry state-set values.
For an investor, that means a severed mineral or royalty interest in West Virginia is a separately assessed piece of real property with its own tax bill. Whether a particular interest is like-kind to other real estate for federal purposes turns on how the interest is defined under federal rules, so a seller of gas royalties who wants to exchange into a DST should have a CPA review the interest before the identification deadline described in our deadlines guide.
No claw-back, and conformity that tracks the federal code
W. Va. Code § 11-21-9 adopts the Internal Revenue Code as the basis for state income tax, with a fixed conformity date that the Legislature moves forward, and Section 1031 is not excluded. Gain deferred federally is simply absent from federal adjusted gross income, so it is absent from the West Virginia return too.
West Virginia keeps no register of gain deferred into out-of-state property and has no claw-back statute of the kind found in California or Oregon. After the replacement property leaves the state, West Virginia's interest ends unless the investor remains a resident when a later sale is taxed.
Replacement property
A West Virginia seller's path into a DST runs through Form NRAE first
A West Virginia investor who exchanges into a DST is usually buying a beneficial interest in property located elsewhere, which Rev. Rul. 2004-86 lets the investor treat as direct ownership of a share of that real estate. For a nonresident seller, the practical sequence is to file Form NRAE first, close with the qualified intermediary, then identify the DST within the federal windows; the cash-out DST option follows the same state steps.
The state in which a DST property sits generally has the first claim to tax the rent it produces, and a West Virginia resident reports that rent at home as well, with any credit for the other state's tax being a question for a CPA. The 4.58% top rate makes that credit worth checking before choosing between DSTs in taxing and non-taxing states.
Withholding, the NRAE timeline and the transfer excise amounts should be confirmed with a CPA and the West Virginia Tax Division before a contract is signed, since the 21-day NRAE deadline is easy to miss on a fast closing.
Questions investors ask about 1031 exchanges in West Virginia
I live in Ohio and own a rental in Morgantown. How do I avoid West Virginia withholding in my exchange?
File Form NRAE with the Tax Division at least 21 days before closing and hand the resulting certificate to the closing attorney. Without it, 2.5% of your total payment or 4.58% of estimated gain is withheld before the deed is recorded.
Is withholding required if my property is owned by an LLC formed in another state?
Yes, unless the LLC holds a current West Virginia business registration certificate. TSD-389 treats an entity formed elsewhere and not registered with the Tax Commissioner as a nonresident entity.
What are West Virginia's income tax rates on a 2026 real estate gain?
Gains are taxed as ordinary income: 2.11% on the first $10,000, 2.81% to $25,000, 3.16% to $40,000, 4.22% to $60,000 and 4.58% above that, under the 2026 rate cut in Senate Bill 392.
Who pays the West Virginia transfer tax when I sell as part of an exchange?
The grantor, under W. Va. Code § 11-22-2: $1.10 per $500 to the state, $0.55 to $1.65 per $500 to the county, plus the $20 Affordable Housing Fund fee. An exchange does not change that.
If withholding was taken at my closing, how do I get it back?
File Form NRER for an early refund between 30 days after the transfer and December 15 of the sale year, or claim it on your West Virginia nonresident return.
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 West Virginia tax agency before you close. This page is general information, not tax or legal advice.
- West Virginia Tax Division, TSD-389: Withholding Requirements for Sales of Real Property by Nonresidents (rev. April 2026)
- West Virginia Tax Division: 2026 Income Tax Rate Cut (Senate Bill 392)
- West Virginia Tax Division: 2025 Tax Rate Schedules
- W. Va. Code § 11-22-2 (real property transfer excise tax)
- W. Va. Code § 11-21-71b (withholding on sales of real property by nonresidents)
- W. Va. Code § 11-21-9 (meaning of Internal Revenue Code)
- West Virginia Tax Division: Ad Valorem Property Tax
- IRS Rev. Rul. 2004-86 (Delaware statutory trusts and Section 1031)