1031 Exchange Rules in Rhode Island

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

What Is Different in Rhode Island

Rhode Island withholds 6% of the total payment from nonresident individual sellers, 7% from corporations, and the buyer must remit it fast: within 3 banking days of closing. The 1031 exemption is handled with the Form RI 71.3 election and certificate before closing. One correction worth making up front, because it appears on several widely used QI charts: the corporate withholding rate is 7%, not 9%. The 9% figure has been stale since a 2019 amendment.

Does Rhode Island Conform to IRC Section 1031?

Yes. Rhode Island 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, Rhode Island defers its income tax too. New to exchanges? Start with our 1031 exchange guide.

Your replacement property can be in any state, and Rhode Island has no claw-back or annual tracking of deferred gain afterward.

Rhode Island Tax Rate on Real Estate Gains

Rhode Island taxes capital gains as ordinary income at a top rate of 5.99% for 2026. On a $500,000 gain, that is roughly $29,950 of state tax on top of the federal bill. A qualifying exchange may defer all of it.

Nonresident Withholding at Closing

Under R.I. Gen. Laws 44-30-71.3, the buyer of Rhode Island real estate from a nonresident must withhold 6% of the total payment when the seller is an individual, estate, partnership, or trust, and 7% when the seller is a corporation. "Total payment" means the net proceeds actually paid to the seller, including the fair market value of any property transferred as part of the price. The buyer must remit the withholding within 3 banking days after closing.

On a $750,000 sale netting $700,000 to an individual seller, that is $42,000 headed to the Division of Taxation within days unless an exemption is in place.

How 1031 Exchangers Claim the Exemption: Form RI 71.3

Rhode Island handles both the exemption and the alternative calculation through its 71.3 series. Before closing, the seller files the RI 71.3 Election/Certificate, which can either certify that the transfer is exempt, including a deferred like-kind exchange, or elect withholding based on the actual gain rather than the total payment. For a fully deferred exchange, the gain is zero, so the certificate eliminates withholding. The remittance form in the same series is used when withholding is actually due.

Get this done before the closing date, not at the table. The 3-banking-day remittance clock means buyers and closing attorneys default to withholding when paperwork is missing. Your qualified intermediary should coordinate the certificate with the closing attorney as soon as the purchase agreement is signed. A qualified intermediary is the independent party that holds your sale proceeds during an exchange. WealthBuilder 1031 prepares exchange documentation that supports the 71.3 certificate.

If you take boot, the recognized portion of the gain remains taxable, and the gain-based election exists precisely for that situation: withhold on what is actually taxable rather than the whole payment.

Federal Taxes Still Apply

A Rhode Island 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 Rhode Island 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 Rhode Island Exchanges

• Paperwork that misses the closing. With remittance due in 3 banking days, a missing 71.3 certificate means the money goes to the state and you wait for a refund on your Rhode Island return.
• Boot surprises. Cash taken at closing or mortgage relief not offset with new debt or additional cash creates recognized gain. Use the gain-based election so withholding matches what is actually taxable.
• Stale rate charts. The 9% corporate figure still circulating on QI websites predates the 2019 amendment. The current rates are 6% and 7%.
• Entity classification mistakes. Partnerships and trusts withhold at 6%, corporations at 7%. Misclassifying the seller changes the math.
• 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 Rhode Island will tax the deferred gain when you eventually cash out. Plan the exit, not just the exchange.

Rhode Island 1031 Exchange FAQs

Does Rhode Island withhold on my sale if I do a 1031 exchange?
Not if you file the RI 71.3 election/certificate before closing certifying the exemption. Without it, the buyer withholds 6% (individuals) or 7% (corporations) and remits within 3 banking days.

What does "total payment" mean?
The net proceeds actually paid to the seller, including the fair market value of any property transferred to the seller as part of the deal.

Is the corporate rate really 7%, not 9%?
Yes. The statute as amended in 2019 sets 6% for individuals, estates, partnerships, and trusts, and 7% for corporations. The 9% figure on some charts is stale.

What if my exchange is partial?
The 71.3 election lets withholding be computed on the recognized gain rather than the total payment, so a partial exchange withholds only on the taxable portion.

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

Sources

• R.I. Gen. Laws Section 44-30-71.3 (as amended 2019)
• R.I. Division of Taxation, Nonresident Real Estate Withholding forms (71.3 series)
• 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 Rhode Island 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 Rhode Island 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 Rhode Island 1031 exchange services to get started.