North Dakota capital gains tax (2026): selling a business, real estate or farm

How the 40% exclusion works

North Dakota begins with federal taxable income and then subtracts 40% of the excess of net long-term capital gain over net short-term capital loss, computed as for federal purposes (N.D.C.C. 57-38-30.3(2)(d), current code). The same subsection excludes 40% of qualified dividends. On Form ND-1 the subtraction is figured on a worksheet that uses the smaller of federal Schedule D lines 15 and 16, so short-term losses and carryovers shrink the excluded amount first (2025 ND-1 booklet).

The remaining 60% is taxed at ordinary North Dakota rates. For 2026 a joint return pays 0% on the first $82,800 of taxable income, 1.95% up to $304,850 and 2.5% above, with single brackets ending at $49,575 and $250,400 (2026 Form ND-1ES rate schedules, indexed yearly). Sixty percent of 2.5% is 1.5%, the effective top rate on long-term gain in 2026, among the lowest of any state that taxes gains at all.

What the exclusion does not reach

• Recapture. Depreciation on machinery, grain bins, trucks and other Section 1245 property comes back as ordinary income under IRC 1245, not as capital gain, so North Dakota taxes all of it. In the example, the $350,000 of recapture is taxed in full while only 60% of the land gain is.
• Short-term gain. Anything held one year or less, is outside the exclusion, and so are breeding cattle and horses held less than 24 months, which do not qualify under IRC 1231.
• Gain sourced elsewhere. The subtraction is allowed only to the extent the net long-term gain is allocated to North Dakota (57-38-30.3(2)(d)(1), current code).

For a farm sale this makes the allocation between land and equipment the main North Dakota lever. The depreciation recapture and price allocation pages explain how that split is set.

No transfer tax, by constitutional amendment

Voters added Article X, Section 27 to the North Dakota Constitution in 2014: the state and every county, township, city or other political subdivision may not impose mortgage taxes or sales or transfer taxes on the mortgage or transfer of real property (N.D. Const. art. X). A seller of a $5 million section of farmland or a Bakken-area commercial building pays no deed tax, unlike sellers in many states where a transfer tax is a percentage of the full price, not the gain.

Selling from out of state: farmland, minerals and buildings

North Dakota taxes nonresidents on income from North Dakota sources, and gain from tangible property located in the state, including land and buildings, is North Dakota income (N.D.C.C. 57-38-04; 2025 ND-1 booklet). Many North Dakota acres and mineral interests are owned by heirs who live in Minnesota, Arizona or elsewhere; those owners file a North Dakota return for the sale and get the 40% exclusion on the North Dakota portion. We found no North Dakota withholding requirement for nonresident real estate sellers; the tax is reported on the return. Gain on stock in a company is generally sourced to the seller's home state.

The bigger tax for an absentee heir is usually federal. Inherited land gets a basis step-up at death, so gain is often modest; see capital gains on inherited property and farmland gains.

Installment sales and the federal side

North Dakota follows federal installment reporting through federal taxable income, so a contract-for-deed or seller-financed land sale reports gain, and the 40% exclusion, as payments arrive. With a state top rate this low, the case for spreading a sale rests on federal brackets and the 3.8% net investment income tax for landlords who cash-rent rather than farm. Farm property is exempt from the IRC 453A interest charge on large notes (IRC 453A(b)(3)(B)), which makes farm installment sales simpler than commercial ones.

Federally, long-term gain is taxed at 0%, 15% or 20%, and the 20% rate begins at $613,700 of joint taxable income (Rev. Proc. 2025-32, 2026); see the capital gains guide and all 51 state pages. In the example the federal layer is the larger share of $589,625. To compare paths for your land or business, get the Big Sale Tax Analysis.

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Frequently asked questions