1031 Exchange in Rhode Island: 6% Withholding, Conveyance Tax and DSTs

Nonresident sellers: file the RI 71.3 Election 20 days before closing or lose 6% at the table

Under RIGL 44-30-71.3 the buyer of Rhode Island real estate owned by a nonresident must deduct 6% of the total payment to an individual, estate, partnership or trust, and 7% to a corporation, and remit it to the Division of Taxation. 'Total payment' means the net proceeds actually paid to the seller, so the default withholding is on cash at closing, not on gain.

Regulation 280-RICR-20-10-1 supplies the alternative: the seller files Form RI 71.3 Election at least 20 days before closing to have withholding based on gain, and the Division issues a Certificate of Withholding Due stating the amount. For an IRC §1031 exchange the regulation is explicit that the nonresident seller must make the gain election and file the RI 71.3 Election even though no withholding need be made, so relief is never automatic.

Miss the 20-day window and the election is unavailable: the buyer withholds on net proceeds, remits on Form RI 71.3 Remittance within three banking days of closing, and the excess is credited when you file your Rhode Island nonresident return. In an exchange that means 6% of your equity sits with the state instead of the qualified intermediary, so the election belongs on the checklist the day the purchase agreement is signed.

Rhode Island conforms to §1031 through its federal AGI starting point

Rhode Island income of a resident means the individual's adjusted gross income for federal income tax purposes with the modifications specified in RIGL 44-30-12, and none of the listed additions or subtractions touches like-kind exchanges. Gain deferred on federal Form 8824 therefore never enters Rhode Island income in the exchange year, and no state election, form or fee is required beyond the withholding paperwork above.

The rate schedule in RIGL 44-30-2.6 has three brackets, 3.75%, 4.75% and 5.99%, set at $55,000 and $125,000 for 2011 and indexed to the consumer price index each year. Rhode Island's reduced rates for assets held more than five years (RIGL 44-30-2.7) applied only to tax years 2007 through 2009, so today's investor pays ordinary rates on real estate gain.

Rhode Island has no claw-back for deferred gain that moves to another state and no counterpart to Oregon's annual tracking form. A nonresident who exchanges out of Rhode Island generally has no further Rhode Island income tax obligation once the withholding is settled; a resident keeps reporting worldwide income, DST distributions included.

Conveyance tax rose to $3.75 per $500 in October 2025, with a residential surcharge above $800,000

Every deed conveying Rhode Island real estate carries the real estate conveyance tax of RIGL 44-25-1, now $3.75 for each $500 of consideration after Public Law 2025, chapter 278 took effect on October 1, 2025. Absent an agreement otherwise the grantor pays, so it is a seller's closing cost on the relinquished property.

Residential property sold for more than $800,000 pays a second $3.75 per $500 on the consideration above that threshold, and beginning January 1, 2026 the threshold is indexed to CPI-U, compounded annually and rounded up to the nearest $5. On a $1,200,000 residential sale, before the 2026 indexing adjustment, the seller's stamps come to $9,000 plus $3,000 on the excess $400,000.

A 1031 exchange does not change the conveyance tax. The withholding regulation's definition of net proceeds subtracts real estate conveyance tax stamps along with commissions and attorney's fees, so at least the stamps reduce the 6% base if you are withheld.

The new state tax on non-owner-occupied homes assessed over $1 million

Chapter 44-72, the Non-Owner Occupied Property Tax Act, imposes a state tax for taxable years beginning on or after July 1, 2026 on residential property that is not the owner's primary residence and is not occupied by the owner for a majority of days in the year. The rate is $2.50 for each $500 of assessed value above $1,000,000, the threshold is indexed from July 1, 2027, and the proceeds go to the state's low-income housing tax credit fund.

The exemptions are what matter to landlords: property rented for more than 183 days in the prior taxable year under the Residential Landlord and Tenant Act is exempt, as is property already subject to the chapter 44-18 tax on rentals, so the levy lands mainly on high-value second homes that are neither long-term rentals nor taxed short-term rentals.

A seller of such a property who exchanges into a DST takes the asset out of the new tax's reach; an investor acquiring one through an exchange should model it alongside the municipal bill, since returns and payment run through the state tax administrator rather than the town.

Municipal revaluations every nine years, not at sale

Rhode Island cities and towns must conduct a revaluation within nine years of the prior one and a statistical update of real property every three years in between (RIGL 44-5-11.6). Assessed values are set as of December 31, and a sale does not by itself produce a new assessment.

Municipal tax rates differ from town to town, so an investor comparing a Rhode Island rental with a DST should read the current bill and the town's revaluation schedule rather than assume a statewide rate.