1031 Exchange Rules in Mississippi

Last reviewed: June 2026. State rules change. Verify current forms before closing.

What Is Different in Mississippi

Mississippi's withholding statute does something unusual: it excludes exchanges by its own text. The 5% withholding on nonresident sales applies only to a sale "which is not considered an exchange or trade of such property," which puts a qualifying 1031 exchange outside the withholding requirement from the start. Mississippi is also unusual in who handles the money: the seller, not the buyer, withholds and remits. And like Georgia, Mississippi is the subject of a persistent myth about in-state replacement property that the statute simply does not support.

Does Mississippi Conform to IRC Section 1031?

Yes. Mississippi follows the federal like-kind exchange rules for real property. A 1031 exchange is an IRS-approved way to sell investment property and buy replacement property without paying tax on the gain right away. If your exchange qualifies for federal deferral, Mississippi defers its income tax too. New to exchanges? Start with our 1031 exchange guide.

Mississippi Tax Rate on Real Estate Gains

Mississippi taxes capital gains as ordinary income at a flat 4% for 2026, with further rate cuts scheduled to begin in 2027. On a $500,000 gain, that is about $20,000 of state tax on top of the federal bill. A qualifying exchange may defer all of it.

Nonresident Withholding at Closing

Under Miss. Code Ann. 27-7-308, withholding applies to sales of Mississippi real estate by nonresidents when the price exceeds $100,000. The amount is the lesser of 5% of the amount realized or the net proceeds. Here is the structural quirk: since a post-2015 amendment, the seller withholds and remits the tax, by the 15th day of the month following closing. The buyer's role is to collect the seller's affidavit.

Why a 1031 Exchange Is Outside the Statute

The statute's own words do the work. Section 27-7-308 applies to a sale "which is not considered an exchange or trade of such property." A qualifying like-kind exchange is, by definition, an exchange, so the withholding requirement does not reach it. The carve-out is unconditional; it does not depend on where the replacement property is located.

In practice, the seller provides the buyer with Form 89-387, the affidavit documenting why no withholding applies. For a partial exchange where some gain is recognized, the statute's affidavit mechanism allows the seller to pay 5% of the recognized gain rather than 5% of the full amount realized.

Your qualified intermediary should coordinate the affidavit with the closing attorney. A qualified intermediary is the independent party that holds your sale proceeds during an exchange. WealthBuilder 1031 prepares exchange documentation that supports the Form 89-387 affidavit.

The In-State Replacement Myth

Some national QI charts claim Mississippi requires replacement property to be located in Mississippi. We reviewed the current statute text directly: it contains no Mississippi-replacement-property requirement of any kind. The exchange carve-out applies wherever you buy. You can sell in Jackson and buy in Nashville or Dallas without triggering Mississippi withholding.

Mississippi also has no claw-back. Once your exchange completes, there is no annual Mississippi filing tied to the deferred gain.

Federal Taxes Still Apply

A Mississippi exchange defers two layers: federal and state. Here is what a taxable sale looks like without an exchange, using round numbers.

Example: $1,000,000 sale of a Mississippi rental. Original purchase $600,000, with $100,000 of depreciation taken, so the adjusted basis is $500,000 and the total gain is $500,000.

Figures are illustrative and rounded. Your rates depend on income, filing status, and basis. Run your own numbers with our 1031 exchange calculators, then confirm them with your tax advisor.

Risks and Things That Go Wrong in Mississippi Exchanges

• Skipping the affidavit. The exchange carve-out is in the statute, but closings run on paperwork. Without Form 89-387, a cautious closing attorney may withhold anyway.
• Seller remittance confusion. Because the seller remits in Mississippi, an out-of-state seller who assumes the buyer or escrow handles it can miss the deadline on the 15th of the following month when withholding does apply.
• Boot surprises. Cash taken at closing or mortgage relief not offset with new debt or additional cash creates recognized gain, and the affidavit mechanism then calls for 5% of that gain.
• Bad information. The in-state replacement myth persists on widely cited charts. Rely on the statute text, not summaries.
• Failed deadlines. The federal 45-day identification and 180-day completion rules apply with no state extensions. See the IRS rules for 1031 exchanges.
• Deferral is not elimination. The IRS and Mississippi will tax the deferred gain when you eventually cash out. Plan the exit, not just the exchange.

Mississippi 1031 Exchange FAQs

Does Mississippi withhold on a 1031 exchange?
No. The withholding statute applies only to sales that are not exchanges, so a qualifying like-kind exchange is outside the requirement. The seller documents it with Form 89-387.

Does my replacement property have to be in Mississippi?
No. The statute's exchange carve-out is unconditional. Claims of an in-state requirement are unsupported by the statute text.

Who remits Mississippi withholding when it applies?
The seller, by the 15th day of the month after closing. This is the opposite of most states, where the buyer or closing agent remits.

What if I take boot in my exchange?
Recognized gain is taxable, and the statute's affidavit mechanism allows withholding of 5% of the recognized gain rather than the full amount realized.

Does Mississippi track my deferred gain after the exchange?
No. Mississippi has no claw-back rule and no annual reporting tied to deferred exchange gain.

Sources

• Miss. Code Ann. Section 27-7-308 (text current through 2025)
• Mississippi DOR, Form 89-387
• Tax Foundation, State Individual Income Tax Rates and Brackets, 2026

Want to learn more?

Our 1031 exchange guide covers the full process from sale to replacement. Ready to start a Mississippi exchange? WealthBuilder 1031 is attorney-owned, serves all 50 states, and charges a flat $1,000 fee. Start at WealthBuilder1031.com or call 888-508-1901.

This page does not constitute legal or tax advice. Consult your attorney and tax advisor about your specific situation.

Ready to start your Mississippi 1031 exchange? WealthBuilder 1031 acts as your qualified intermediary for a flat $1,000 fee, $750 at your sale and $250 at your purchase. See our Mississippi 1031 exchange services to get started.