Minnesota taxes capital gains as ordinary income — up to 9.85% — stacked on top of federal tax, so selling appreciated real estate can cost roughly ~33.6% of the gain. A 1031 exchange into a Delaware Statutory Trust lets Minnesota investors defer that combined bill and trade active landlording for passive institutional real estate.
The Minnesota tax math
Here's the tax stack on a long-held rental sold for a $1.5M gain (excludes depreciation recapture, taxed separately at up to 25%):
| On a $1.5M gain | Tax |
|---|---|
| Federal long-term capital gains (20%) | $300,000 |
| Net investment income tax (3.8%) | $57,000 |
| Minnesota income tax (9.85%) | $147,750 |
| Total if you simply sell | $504,750 |
| Tax if you 1031 into a DST | $0 deferred |
In Minnesota's top bracket, roughly the combined rate above goes to tax if you sell outright — versus $0 now with a qualifying 1031 exchange. Run your Minnesota numbers →
Minnesota 1031 rules
Rules summarized as of 2026 — verify with your tax advisor.
Conforms to federal §1031
Minnesota conforms to IRC §1031, so a qualifying exchange defers Minnesota tax as well as federal tax.
Withholding at sale
Minnesota may require nonresident withholding at closing; a qualifying 1031 exchange generally defers it. Confirm specifics with your closing agent.
How gains are taxed
Taxed as ordinary income — up to 9.85%.
Minnesota market snapshot
Illustrative — wire to a market-data feed; refreshed quarterly.
Baker 1031 in Minnesota
Realized (acquired, held, sold) programs on Minnesota assets. Joined from full-cycle-deals.csv; sponsor-reported, net-to-investor, not independently verified; past performance ≠ future results.
| Program | Sponsor | Avg annual | Equity × | Hold |
|---|---|---|---|---|
| Rio Bravo — St. Paul | AEI | 5.49% | 1.67x | 9.81 yr |
| Timber Lodge — Rochester | AEI | 6.83% | 1.21x | 10.06 yr |
| Timber Lodge — St. Cloud | AEI | 5.78% | 1.21x | 13.58 yr |
| Walgreens — Alexandria | Syndicated Equities | 7.48% | 1.44x | 5.05 yr |
| Abbott Labs Bio-Medical Portfolio — Minnetonka | Syndicated Equities | 18.40% | 2.35x | 5.06 yr |
See every Minnesota deal in the Data Center →
Current offerings for Minnesota investors
| Offering | Sponsor | Type | Status |
|---|---|---|---|
| NexPoint Life Sciences III DST | NexPoint | Life Sciences | Limited Availability |
DST sponsors based in Minnesota
Learn more
Minnesota FAQ
What is the capital gains tax rate in Minnesota?
Minnesota taxes capital gains as ordinary income, up to 9.85%, with no separate long-term rate. Combined with the federal 20% rate and the 3.8% net investment income tax, a high-bracket Minnesota seller can face roughly ~33.6% on a real estate gain.
Does Minnesota recognize 1031 exchanges?
Yes. Minnesota conforms to IRC §1031, so a properly structured exchange defers Minnesota tax as well as federal tax.
Why use a 1031 exchange in Minnesota?
To defer the tax on a large gain (up to about ~33.6% combined) and move from active landlording into passive, professionally managed real estate while keeping your full equity invested. These are Regulation D offerings for accredited investors.
Disclosures
This page is educational and is not investment, tax, or legal advice, or an offer to sell or a solicitation to buy any security. State tax and 1031 rules summarized here are general, current as of 2026, and not tax advice — verify with your CPA and attorney. For accredited investors only. Representatives may transact business only in states where registered or exempt. Securities offered through Aurora Securities, Inc., member FINRA/SIPC; Baker 1031 Investments, LLC is independent of Aurora. Performance shown is sponsor-reported, realized programs only, net of fees, not independently verified, and not indicative of future results.