1031 Exchange in Virginia: Grantor Tax, Northern Virginia Fees and DSTs

Virginia's grantor tax and the Northern Virginia regional fees are due even when the sale is an exchange

A 1031 exchange defers income tax, not the charges Virginia collects when a deed is recorded. The seller's grantor tax under Va. Code § 58.1-802 is 50 cents for each $500 of the consideration or the property's value, whichever is greater, and the statute places it on the grantor unless the parties agree that the buyer will cover part of it.

In the counties and cities that belong to the Northern Virginia Transportation Authority, two more grantor-paid charges attach to the same deed. Va. Code § 58.1-802.3 adds a regional WMATA capital fee of $0.10 per $100, and § 58.1-802.4 adds a regional congestion relief fee of $0.10 per $100 in Planning District 8.

Together those three charges put the seller's recording cost in Northern Virginia at $0.30 per $100 of price, or $3,000 on a $1,000,000 sale, before the buyer's recordation tax. In the Hampton Roads transportation district, § 58.1-802.5 adds a regional transportation improvement fee of $0.06 per $100, again paid by the grantor.

The buyer's side is the state recordation tax of 25 cents per $100 under § 58.1-801, measured against the greater of the price or the most recent assessment, plus a local recordation tax that § 58.1-814 caps at one-third of the state amount. None of these statutes contains an exemption for like-kind exchanges, so the qualified intermediary structure changes nothing at the clerk's counter.

Virginia taxes real estate gains as ordinary income, topping out at 5.75% above $17,000

Virginia has no separate capital gains rate. Gain that lands in federal adjusted gross income flows into Virginia taxable income and is taxed under Va. Code § 58.1-320 at 2% on the first $3,000, 3% up to $5,000, 5% up to $17,000 and 5.75% on everything above that.

Because the top bracket begins at $17,000, almost the entire gain on an investment property sale is taxed at 5.75%. On a $600,000 gain, that is roughly $34,000 of Virginia tax that a completed exchange defers alongside the federal liability.

The deferral works because Va. Code § 58.1-301 conforms Virginia to the Internal Revenue Code as it stood on December 31, 2025, and Section 1031 is not among the provisions Virginia carves out. If the exchange qualifies under the federal rules described in our overview of what a 1031 exchange is, no Virginia gain is recognized either.

No Virginia withholding at closing, but nonresident landlords must be registered

Virginia does not withhold state income tax from a seller's proceeds, whether the seller is a resident or not. That sets it apart from West Virginia across the border, and it means a Virginia closing needs no state exemption certificate for an exchange.

What Virginia does require is registration. Under Va. Code § 58.1-316, a nonresident owner receiving $600 or more in a calendar year from renting Virginia real estate must register with the Department of Taxation on the form the Tax Commissioner prescribes, and a broker who manages the property must transmit that registration by the fifteenth of the following month or face a $50-per-month penalty.

The registration is an information filing, not a lien and not a withholding mechanism, so the full net proceeds move to the qualified intermediary at closing. A nonresident who has never registered should fix that before listing the property rather than discover it during the exchange.

Virginia has no claw-back when the replacement property leaves the Commonwealth

Some states track gain deferred on the sale of in-state property so they can tax it when the out-of-state replacement is eventually sold; California, Oregon, Massachusetts and Montana do this. Virginia has no such statute and no annual reporting form for deferred gain.

Once a Virginia property is exchanged into real estate elsewhere, Virginia's claim on the deferred gain depends only on whether the taxpayer is still a Virginia resident when a later taxable sale occurs. A resident reports that gain as part of federal adjusted gross income; a nonresident generally owes Virginia nothing on property outside the Commonwealth.

Reassessment runs on the locality's cycle, and land-use rollback can follow a farmland sale

Virginia does not reassess on sale; assessments move on locality-wide cycles. Va. Code § 58.1-3250 requires cities to reassess every two years (four years for cities of 30,000 or fewer), and § 58.1-3252 puts counties on a four-year cycle that can be shortened to three by vote or stretched to five or six years in counties of 50,000 or fewer.

An investor exchanging into Virginia property should look up where the locality is in its cycle, because the next general reassessment, not the purchase, drives the tax bill.

Farmland, forest and open-space land assessed under the land-use program in Va. Code § 58.1-3230 carries a rollback exposure. When the use changes to a non-qualifying one, § 58.1-3237 charges the deferred tax for the five most recent complete tax years plus simple interest, so a seller conveying land-use acreage to a developer should settle in the contract who bears that rollback.

Virginia decouples from bonus depreciation, which matters for bonus depreciation funds

Investors who pair an exchange with a bonus depreciation fund, or who take cash out and hope to offset the recognized gain with depreciation, should know that Va. Code § 58.1-301 specifically excludes the special depreciation allowance in IRC § 168(k) from Virginia conformity.

The federal deduction still applies, but Virginia requires depreciation to be computed without the bonus allowance, so the Virginia benefit arrives over the asset's normal recovery period rather than in year one. See our investment types page for how these funds differ from a DST, and take the Virginia adjustment to a CPA before relying on year-one deductions.