StructuredSales.org
StructuredSales.org
North Dakota is light on a long-term gain for two reasons. The top rate on the 2026 Form ND-1ES is 2.5%, and 40% of eligible net long-term gain is subtracted before that rate applies. At the top bracket the state tax on that gain is 1.5%. There is no local income tax. Federal tax is still the larger check: 15% or 20%, plus the 3.8% net investment income tax once joint income clears $250,000.
Unlike a flat-tax state, the brackets are wide enough that splitting a very large gain can change the state bill, not only the due date. The change is real and, next to the federal change, usually smaller. The farm example below labels both results as estimates.
North Dakota taxable income starts with federal taxable income. The Tax Commissioner indexes the brackets. Form ND-1ES for 2026, revised December 2025, publishes the schedules individuals use for estimates. For a married couple filing jointly or a qualifying surviving spouse, North Dakota taxable income through $82,800 is taxed at 0%. Income over $82,800 through $304,850 is taxed at 1.95%. Income over $304,850 is taxed at $4,329.98 plus 2.5% of the excess. Single filers reach 2.5% above $250,400, after a 0% band through $49,575 and a 1.95% band between those figures. There is no city or county add-on.
The Commissioner's general individual page still shows the 2025 thresholds. Use the 2026 ND-1ES for a 2026 sale. The 0%, 1.95%, and 2.5% rates are in N.D.C.C. § 57-38-30.3. The dollar amounts are indexed.
Line 6 of Form ND-1 is the exclusion. The 2025 booklet, which the 2026 estimate form still points to, starts with federal Schedule D lines 15 and 16. If either is zero or less, stop. Otherwise take the smaller figure, so a short-term loss reduces the amount first. A full-year resident multiplies by 40%. A nonresident or part-year resident limits the computation to gain and loss reportable to North Dakota, then takes 40% of that piece. Gain already removed on ND-1 lines 7 or 16 is not excluded again. Short-term gain gets nothing. For a resident with one long-term sale and no short-term loss, 40% of the gain leaves the North Dakota base and 60% is taxed in the bracket the rest of the return occupies. Sixty percent of 2.5% is 1.5%, and that effective top rate applies only after the lower bands are full.
Qualified dividends can receive a related reduction. A farm sale is not a dividend. Do not apply the dividend rule to land, or the 40% exclusion to cash rent, CRP income, or mineral royalties. Those are ordinary.
North Dakota starts from federal taxable income, so §453 gain lands on the ND-1 in the year Form 6252 reports it. The 40% exclusion is computed on that year's net long-term gain, not on the sale price. Spreading the sale does not forfeit the exclusion, and it does not let you exclude money you have not yet recognized.
That is the part flat-tax states do not have. After the exclusion, a $2 million gain can push almost all of the included 60% through the 2.5% band. The same gain at $250,000 a year can leave more of the included amount in the 0% and 1.95% bands. The reduction is real, and it is usually smaller than the federal change. The example puts a number on both.
Recapture is ordinary in the year of sale under §453(i) and §1245, so it gets neither the 15% federal rate nor the 40% exclusion. Section 453A charges interest on deferred federal tax above $5 million of obligations. Related-party sales can be accelerated under §453(e) or barred under §453(g). Farm-income averaging under §1301, and the matching North Dakota election under § 57-38-30.3, should not be assumed to stack with installment reporting. The tax-treatment guide covers the federal side. Real property in the state generally stays North Dakota-source after a move, and a nonresident's exclusion follows only that North Dakota-source gain.
Red River Valley prices sit far above an old purchase basis or an inheritance that values have since outgrown. Western sales, including the illustration, more often reserve the minerals. The farmland guide is the allocation: land can be spread, and machinery, grain systems, and tile are recaptured at closing. Read inherited farmland before treating an old inheritance as zero basis. There is no Iowa-style retired-farmer exclusion. The 40% exclusion applies whether or not you farmed the ground, if the gain is long-term and reportable to North Dakota. Minnesota taxes gain at much higher rates and adds a 1% net investment income tax, with an agricultural-land carve-out from that surtax only. Montana is the western border.
Bakken royalties are ordinary, taxed at up to 2.5% with no 40% exclusion. Selling the mineral interest can be long-term gain. The mineral-rights article covers holding period, basis, and §1254 recapture. Recapture cannot take the exclusion. The farm example reserves the minerals, so it is not a mineral sale. Companies in Fargo, Bismarck, Grand Forks, and Minot follow the business-sale pattern: goodwill may qualify, equipment recapture will not. A sale to a child raises §453(e) and §453(g) first. A 1031 exchange fits when the goal is replacement property rather than income.
A married couple sells 1,280 acres, two sections, in Williams County. Minerals are reserved. The price for the surface is $2,400,000. Basis is $400,000, from an inheritance that has since been overtaken by prices. Long-term gain is $2,000,000. There is no depreciation recapture in the example because the asset is land. Pensions and taxable Social Security continue at $75,000 a year after the sale; the cash rent stops and is not in that $75,000. They are full-year North Dakota residents in every year of the illustration, file jointly, and take the 2026 federal standard deduction of $32,200. They have no short-term loss, so the 40% exclusion is 40% of the long-term gain recognized that year.
Principal is paid in eight equal amounts, so each year they recognize $250,000 of gain. North Dakota taxable income is federal taxable income minus the 40% exclusion. Brackets are Revenue Procedure 2025-32. NIIT is 3.8% above $250,000 of joint MAGI. The table ignores interest, which would be ordinary and would not get the exclusion, plus the time value of money and any deduction for state tax. North Dakota tax is rounded from the ND-1ES formula. These are estimates.
| Estimate | Lump sum | Eight-year total |
|---|---|---|
| Long-term gain recognized | $2,000,000 | $2,000,000 |
| Federal tax at 0% / 15% / 20% | $363,040 | $232,680 |
| Federal NIIT at 3.8% | $69,350 | $22,800 |
| North Dakota tax after the 40% exclusion | $27,779 | $17,160 |
| Estimated total on the gain | $460,169 | $272,640 |
The illustrative difference is about $187,529. About $176,910 is federal and about $10,619 is North Dakota. The lump-sum federal taxable income is $2,042,800. The exclusion removes $800,000, leaving North Dakota taxable income of $1,242,800. Tax is $4,329.98 plus 2.5% of the excess over $304,850, which rounds to $27,779. Each installment year, federal taxable income is $292,800, the exclusion removes $100,000, and North Dakota taxable income of $192,800 is inside the 1.95% band: 1.95% of the excess over $82,800 is $2,145, or $17,160 over eight years. Federally, $1,429,100 of the lump sum is taxed at 20%. Each $250,000 installment sits on $42,800 of ordinary taxable income, so $56,100 is at 0% and the rest at 15%. A flat 1.5% of the whole gain would miss the $10,619 the lower bands produce here. The price is under $5 million, so §453A does not apply.
Form ND-1ES for 2026 uses three rates: 0%, 1.95%, and 2.5%. For a married couple filing jointly, the 0% band runs through $82,800 of North Dakota taxable income, 1.95% applies through $304,850, and 2.5% applies above that. The brackets are indexed. There is no local income tax.
Form ND-1 excludes 40% of eligible net long-term capital gain. The worksheet starts with the smaller of federal Schedule D lines 15 and 16, so short-term losses reduce the amount first. Full-year residents exclude 40% of that net amount. Nonresidents exclude 40% only of net long-term gain reportable to North Dakota. At the top rate, the state tax on eligible gain is capped at 1.5%.
It can. After the 40% exclusion, a gain that sits almost entirely in the 2.5% band in one year can fall partly into the 0% and 1.95% bands if it is recognized over several years. The dollar difference is often modest next to the federal difference. The example shows both, and it is an estimate.
North Dakota taxes income from North Dakota sources. Gain from North Dakota real property generally remains North Dakota-source as installment payments arrive. The 40% exclusion for a nonresident is limited to net long-term gain reportable to the state. A move should be modeled with a preparer. It does not automatically end North Dakota tax on North Dakota land.
No. Royalty income is ordinary income, taxed at regular rates, and it does not get the 40% long-term exclusion. A sale of the mineral interest can be long-term capital gain if the holding-period and basis rules are met, and that gain can qualify for the exclusion. Depletion and intangible drilling costs can be recaptured as ordinary income under IRC §1254 and will not be spread by the installment method.
Last reviewed: October 22, 2026.
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