The short answer
Wisconsin conforms to Section 1031, so an exchange defers the Wisconsin tax on the gain together with the federal tax. What makes Wisconsin different is the alternative: a taxable sale gets a 30% exclusion of net long-term capital gain (60% for farm assets), which cuts the effective top rate from 7.65% to about 5.4% and changes the math on whether to exchange at all. The grantor's real estate transfer fee of $3 per $1,000 is collected at recording regardless, and Wisconsin withholds nothing at closing.
Wisconsin at a glance
| Top income tax rate (tax year 2025) | 7.65% on taxable income over $323,290 single or $431,060 married filing jointly |
|---|---|
| Long-term gain exclusion | 30% of net capital gain on assets held more than one year; 60% for farm assets |
| Effective top rate on a taxable gain | About 5.4% after the 30% exclusion (7.65% applied to 70% of the gain) |
| Real estate transfer fee | 30 cents per $100 of value, paid by the grantor (Wis. Stat. § 77.22) |
| Exchange exemption from the fee | None; the § 77.25 exemption list has no like-kind exchange entry |
| Withholding at closing | None on real estate sales; only pass-through entities withhold (Form PW-1) |
| Farmland assessment | Use value under § 70.32(2r); conversion charge under § 74.485 if use changes |
| Claw-back of deferred gain | None |
Wisconsin's 30% capital gain exclusion changes the exchange decision
Wisconsin is one of the few states that taxes only part of a long-term gain. Publication 103 confirms that for 2025 returns a deduction of 30% of net capital gain from assets held more than one year is allowed in computing Wisconsin taxable income, and 60% for farm assets held more than one year.
Individuals claim the deduction on Schedule WD and estates and trusts on Schedule 2WD, so the exclusion appears as a Wisconsin-only adjustment rather than a change to the federal figures.
The remaining 70% is taxed at the ordinary brackets, which for 2025 run 3.50%, 4.40%, 5.30% and 7.65%, with the top rate starting at $323,290 for single filers and $431,060 for married couples filing jointly. On a $1,000,000 gain, that works out to roughly $53,000 of Wisconsin tax rather than $76,500 without the exclusion.
That is still real money, and a completed exchange defers all of it. But a Wisconsin investor weighing a cash-out DST against a full exchange should run the numbers with the exclusion applied, because Wisconsin's bite on a taxable sale is smaller than its headline rate suggests.
Farm assets held more than one year qualify for the 60% figure, so only 40% of that gain reaches the Wisconsin brackets.
Wisconsin follows Section 1031 through its fixed-date conformity
Wisconsin computes income from federal adjusted gross income using the Internal Revenue Code as defined in Wis. Stat. § 71.01(6), which for current years adopts the code as amended to December 31, 2022 with a list of specific exclusions. Section 1031 and the 2017 federal change limiting exchanges to real property are not on that list, so Wisconsin recognizes the same deferral the IRS does.
Nonresidents who sell Wisconsin property report the gain on Form 1NPR, and residents on Form 1 with Schedule WD. When the federal return shows a completed exchange, neither form shows Wisconsin gain.
The nonresident return matters for out-of-state owners of Wisconsin rentals, because Wisconsin taxes a nonresident only on Wisconsin-source income and the sale of Wisconsin land is squarely Wisconsin-source. An exchange keeps that gain off Form 1NPR for as long as the deferral holds.
There is no Wisconsin claw-back statute. A Wisconsin property exchanged into real estate in another state is not tracked by the Department of Revenue, and no Wisconsin tax follows the deferred gain unless the investor is a resident when a later sale becomes taxable.
The $3-per-$1,000 transfer fee falls on the seller and has no exchange exemption
Wis. Stat. § 77.22 imposes a real estate transfer fee of 30 cents for each $100 of value, payable by the grantor when the deed is submitted for recording, and the register of deeds will not accept the conveyance until the electronic real estate transfer return is filed and the fee is collected.
The return is executed by the grantee or the grantee's agent and signed by both parties, and the register enters the fee on the face of the deed before recording it.
Section 77.25 lists more than 30 exemptions, from corrective deeds and transfers between spouses to conveyances into family LLCs, but none covers a like-kind exchange or a transfer through a qualified intermediary. On a $1,500,000 sale the fee is $4,500, and using an intermediary to hold the proceeds leaves the fee exactly where it was.
No Wisconsin withholding at closing, with one pass-through exception
Wisconsin does not withhold income tax from real estate sale proceeds, resident or not. The Department of Revenue's withholding programs cover employer wages, pass-through entities and nonresident entertainers, and none of them attaches to a deed.
The exception arrives through the entity. A partnership, an LLC taxed as a partnership, an S corporation or a trust with Wisconsin income allocable to a nonresident partner, member or beneficiary must withhold Wisconsin tax on that income and report it on Form PW-1.
If a Wisconsin building held in a multi-member LLC is sold taxably and a member lives elsewhere, the entity withholds on that member's share of the gain. Gain deferred in an exchange is not Wisconsin income, so nothing is withheld on it.
Farmland is assessed on use value, and converting it triggers a conversion charge
Wisconsin assesses agricultural land under Wis. Stat. § 70.32(2r) according to the income that could be generated from its rental for agricultural use, not its market value. A sale does not change that classification; a change in use does.
Under § 74.485, an owner who converts land that was assessed as agricultural so that it no longer qualifies owes the county a conversion charge: the converted acres multiplied by the difference between average fair market value and average use value per acre, times 10% for parcels under 10 acres, 7.5% for 10 to 30 acres and 5% for more than 30 acres.
The charge lands on the owner who converts, so a Wisconsin farmland seller exchanging into a DST generally leaves it with the buyer, while an investor exchanging into Wisconsin farmland with development plans should price it in. Payment can be deferred if the owner shows the land will return to agricultural use the following year.
Replacement property
A Wisconsin seller's DST math: deferral now, the 30% exclusion later
A Wisconsin investor exchanging into a DST typically acquires an interest in property outside Wisconsin, and Rev. Rul. 2004-86 is the ruling that qualifies such an interest as real property for Section 1031. The exclusion that softens a taxable sale has no role once the gain is deferred, since no gain is recognized to exclude.
Wisconsin taxes residents on all income, so DST rental income is reported at home even when the property's state also taxes it to a nonresident. Whether Wisconsin's credit for taxes paid to other states offsets that second tax is a CPA question that depends on the property state.
If the DST later sells its property and the investor takes cash rather than exchanging again, the 30% exclusion generally applies to the recognized long-term gain, though the mix of depreciation recapture and capital gain at that point needs a CPA's review. Run the whole sequence past your CPA and the Wisconsin Department of Revenue before choosing between a full exchange and a cash-out.
Questions investors ask about 1031 exchanges in Wisconsin
How much Wisconsin tax does a 1031 exchange defer on a $400,000 gain?
After the 30% exclusion, $280,000 of long-term gain is taxed at Wisconsin's brackets, roughly $21,000 at the 7.65% top rate. A completed exchange defers that along with the federal tax.
Does the 60% exclusion apply when I sell a Wisconsin farm and exchange part of the proceeds?
The 60% figure applies to net long-term gain on farm assets that is actually recognized. Gain deferred in the exchange is not recognized, so the exclusion only reaches whatever boot or cash-out portion is taxable.
Who pays the transfer fee if I sell my Milwaukee duplex into an exchange?
You do, as grantor: 30 cents per $100 of value under § 77.22, collected before the deed is recorded. Wisconsin lists no exemption for like-kind exchanges.
Will Wisconsin withhold tax at closing because I now live in Florida?
No. Wisconsin has no withholding on real estate sales. Only if the property is owned by a partnership, LLC or trust with nonresident owners does the entity withhold on Wisconsin income, and deferred exchange gain is not Wisconsin income.
If I exchange my Wisconsin property into an Arizona DST, can Wisconsin tax the deferred gain later?
Only if you are a Wisconsin resident when that gain is finally recognized. Wisconsin has no claw-back rule tracking gain that left the state.
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 Wisconsin tax agency before you close. This page is general information, not tax or legal advice.
- Wisconsin Department of Revenue, Publication 103: Reporting Capital Gains and Losses for Wisconsin (1/26)
- Wisconsin Department of Revenue: Individual income tax rates and brackets
- Wis. Stat. § 77.22 (real estate transfer fee)
- Wis. Stat. § 77.25 (transfer fee exemptions)
- Wis. Stat. § 70.32 (assessment of real property, including use value under (2r))
- Wis. Stat. § 74.485 (agricultural land conversion charge)
- Wis. Stat. § 71.01 (definition of Internal Revenue Code)
- Wisconsin Department of Revenue: Withholding tax