1031 Exchange in Louisiana: Flat 3% Tax, Community Property and DSTs

Louisiana's 3% flat rate since 2025, and why a deferred gain never reaches the IT-540

Act 11 of the 2024 Third Extraordinary Session replaced Louisiana's 1.85%, 3.5% and 4.25% brackets with a single 3% rate on all taxable income for tax years beginning on or after January 1, 2025, and nearly tripled the standard deduction to $12,500 for single filers and $25,000 for joint filers, indexed to inflation from 2026. The Department of Revenue's Revenue Information Bulletin 25-012 walks through the change; capital gains get the same 3% as wages.

Louisiana's starting point is federal. R.S. 47:293 defines an individual's adjusted gross income as "the adjusted gross income of the individual for the taxable year that is reportable on the individual's federal income tax return," so gain deferred under §1031 is excluded from Louisiana income by definition, with no Louisiana election or separate schedule required by statute.

For nonresident owners, R.S. 47:243 allocates "profits from sales and exchanges of capital assets consisting of immovable" property to the state where the property is located. Recognize the gain and Louisiana taxes it at 3%; defer it and there is nothing to allocate.

Louisiana's constitution bans transfer taxes, so an act of sale costs recording fees, except in Orleans Parish

Article VII, Section 2.3 of the Louisiana Constitution, approved by voters in November 2011, prohibits the state and its political subdivisions from levying a new tax or fee on the sale or transfer of immovable property. A seller in Baton Rouge, Lafayette or Shreveport pays the clerk of court's recording fees on the act of sale and nothing measured by price.

Orleans Parish is the grandfathered exception. Its documentary transaction tax is a flat $325 for most recorded documents (mortgages under $9,000 use a lower scale), with $100 per page over 25 pages on non-residential documents up to a $2,525 cap, and the seller, donor or mortgagor pays it at recording or within 30 days. Because it is a flat amount per document rather than a percentage, an exchange sale of a $4 million French Quarter building and a $400,000 Gentilly double owe the same $325.

Selling community immovable property takes both spouses at the act of sale (Civil Code art. 2347)

Louisiana is a community-property state, and Civil Code article 2347 requires "the concurrence of both spouses" for "the alienation, encumbrance, or lease of community immovables." A rental duplex bought during the marriage is presumed community property, so both spouses sign the act of sale even if only one is named on the title, and a title examiner will insist on it.

For an exchange, the practical consequence is that the exchanger on the relinquished side is the community, meaning both spouses, and the replacement property or DST interest should be acquired the same way. Moving it into one spouse's separate property or into a newly formed entity between the sale and the purchase is the kind of change in taxpayer that undermines a deferral; the eligibility requirements page explains the same-taxpayer principle.

The vocabulary is different too: "immovable property" where other states say real estate, and an "act of sale" passed before a notary where they say deed. Your qualified intermediary needs assignment language that fits that form.

Reserving minerals in a Louisiana sale creates a servitude with a ten-year clock, not a permanent estate

Louisiana does not recognize a mineral estate separate from the land. When a seller reserves oil and gas rights in an act of sale, the reservation creates a mineral servitude, defined in Article 21 of the Mineral Code as a right in land owned by another to explore for, produce and reduce minerals to possession, and the Mineral Code makes that servitude subject to prescription of nonuse for ten years.

If no good-faith drilling or production occurs within ten years of the sale, the servitude extinguishes by operation of law and the minerals return to the surface owner. A seller who plans to keep the minerals while exchanging out of the surface should price and document the reserved servitude separately, understand that its value may be temporary, and confirm with a CPA how the sale price is allocated between the surface being exchanged and the rights being kept.

Parish assessments: 10% on land and homes, 15% on commercial, reappraised at least every four years

Article VII, Section 18 of the state constitution fixes the assessment ratios statewide: 10% of fair market value for land and residential improvements, 15% for other property such as a strip center or self-storage facility, and 25% for public-service property. Every parish assessor must reappraise all property "at intervals of not more than four years," so a sale does not itself reset the assessment; the next quadrennial reappraisal does.

Bona fide agricultural, horticultural, marsh and timber lands are assessed at 10% of use value rather than market value, which matters to an investor exchanging out of sugarcane or timber acreage in a parish where market value has run ahead of farm income. Whether the buyer keeps the use-value assessment generally depends on continued qualifying use as defined by general law.

No closing withholding and no claw-back: what Louisiana does not do to nonresident sellers

Louisiana has no statute directing a buyer, notary or title company to withhold state income tax from an out-of-state seller's proceeds. A nonresident who sells Louisiana immovable property and recognizes gain reports it on the nonresident return under the R.S. 47:243 allocation and pays 3%; a nonresident who exchanges owes nothing on that sale.

Louisiana also does not follow deferred gain out of the state. An investor who exchanges a Metairie office building into a DST holding property in Tennessee and Florida is taxed on the DST income where the buildings are, and Louisiana never returns for the Metairie gain.