1031 Exchanges in Tennessee: Rules, Taxes, Insurance, and the Long Arc

A Shop 1031 research page. Reviewed 2026-06-03. Every claim sourced; sources collected at the foot of the page.

Tennessee is a no-income-tax state (post-2021 Hall Tax repeal) with one of the strongest demographic growth stories in the Southeast, not a static Border South jurisdiction. The distinction matters because the Hall income tax on dividends and interest was fully repealed effective for tax years beginning January 1, 2021, leaving Tennessee with no personal income tax of any kind, while Nashville and the surrounding Middle Tennessee corridor have absorbed concentrated inbound capital and population since 2020. Tennessee’s recordation tax applies at every closing without §1031 exemption.

§1. 1031 mechanics in Tennessee

The federal floor applies under 26 U.S.C. §1031 and 26 C.F.R. §1.1031(k)-1. ^{1 2}

Tennessee imposes no personal income tax effective January 1, 2021, following the full repeal of the Hall income tax (which had applied to dividend and interest income at 6 percent until 2016 and was phased down by 1 percent annually to full repeal). There is no state-level §1031 conformity question for individual or pass-through exchangers. Tennessee imposes a Franchise and Excise Tax on entities (corporations and certain LLCs), which can apply to entities holding Tennessee commercial real estate. ³

Tennessee imposes a Recordation Tax under Tenn. Code §67-4-409 at $0.37 per $100 of consideration on the transfer of real property by deed (effectively 0.37 percent). A separate mortgage recordation tax applies. On a $5,000,000 acquisition, the deed recordation tax runs $18,500. There is no §1031 exemption from the recordation tax. ⁴

Tennessee imposes no state-level QI registration regime.

Tennessee is functionally a title-and-escrow state with attorney involvement common in larger commercial transactions.

§2. Property tax in Tennessee

Tennessee has an effective property tax rate of approximately 0.55 percent of owner-occupied housing value, well below the 1.02 percent national median. The structural mechanics are governed by Tenn. Code Title 67, Chapter 5. Property is classified into four classes with different assessment ratios: residential and farm property at 25 percent of fair market value; commercial and industrial at 40 percent; utility at 55 percent; and tangible personal property at 30 percent. ⁵

Harlow’s note on unit economics. On a $5,000,000 Tennessee commercial acquisition at the 40 percent assessment ratio applied to the local rate stack, year-one property tax runs roughly $35,000 to $65,000.

§3. Property insurance in Tennessee

Tennessee property insurance is dominated by severe-thunderstorm, tornado, ice-storm, and hail exposure across the state. Western Tennessee (Memphis area) carries New Madrid Seismic Zone exposure that is independently underwritten. The Tennessee Department of Commerce and Insurance regulates carrier conduct. ⁶

Harlow’s note on unit economics. For a $5,000,000 Tennessee commercial property in central or eastern Tennessee, expect property-insurance expense in the range of 0.4 to 0.8 percent of insured value. For Memphis-area property within the New Madrid Seismic Zone, a separate earthquake policy can add 0.2 to 0.5 percent.

§4. Demographic trends

Tennessee’s population stood at approximately 7.3 million as of 2025 Census estimates, with strong positive net migration concentrated in Nashville, Knoxville, Chattanooga, and the surrounding suburban corridors. Tennessee ranked among the top ten states by absolute population gain in 2025. ^{7 8}

Median household income in Tennessee was approximately $68,000 in 2024, below the national median. ^{9 10}

The major Tennessee markets are Nashville-Davidson-Murfreesboro (approximately 2.1 million population and the strongest growth corridor in the Southeast), Memphis (approximately 1.3 million including the Mississippi and Arkansas portions), Knoxville (approximately 920,000), and Chattanooga (approximately 575,000). Nashville concentrates the deepest balanced commercial market and has absorbed the most California and out-of-state institutional inbound capital per capita; Memphis serves the distribution and FedEx corridor; Knoxville and Chattanooga serve secondary corridors with strong growth signals.

§5. Unique legal and financial considerations

The first is the Franchise and Excise Tax application to entity-owned commercial real estate, which can affect underwriting on properties held through LLCs or corporations.

The second is the New Madrid Seismic Zone exposure in western Tennessee, addressed in §3.

The third is the Nashville growth premium. Cap rates in Nashville have compressed materially since 2020 reflecting institutional inbound capital. Cross-state replacement underwriting using statewide Tennessee comp data systematically understates the institutional bid in Nashville.

The fourth is the Tennessee Greenbelt Law (T.C.A. §67-5-1001 et seq.) for agricultural and open-space property, which provides for use-value assessment with rollback taxes on conversion.

§6. Closing summary and the work ahead

The Tennessee 1031 exchanger is operating in a market with a clear set of distinguishing features. The federal floor applies; Tennessee has no personal income tax post-Hall repeal; the Franchise and Excise Tax applies to entity-owned property; the recordation tax runs $0.37 per $100 at recording with no §1031 exemption; the classified property tax system places commercial property at 40 percent assessment ratio; western Tennessee carries New Madrid earthquake exposure; demographic growth is among the strongest in the Southeast with Nashville as the dominant corridor; the Greenbelt Law affects agricultural and open-space property. The jurisdiction-specific factors above are starting-point context. A state-experienced CRE professional will translate them into deal-specific judgment.

This page is the working map. The actual exchange is run by people. A Tennessee-licensed real estate attorney, a Tennessee-licensed CPA familiar with §1031, a Qualified Intermediary, and a CRE professional who knows this market and these properties. Shop 1031 is the analytics layer that triages which deals deserve your time. The professionals do the work.

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Shop 1031 is an independent analytics platform. We are not a brokerage, a law firm, a tax advisor, a lender, or a Qualified Intermediary. Every 1031 exchange should be reviewed by a state-licensed real estate attorney, a CPA familiar with IRC §1031, and a QI. Brokerage and advisory services, when used, are provided by independently licensed third parties under separate engagement. This page is research, not advice. The Tennessee-specific surfaces discussed (Franchise and Excise Tax application to entity-owned commercial real estate, recordation tax with no §1031 exemption, New Madrid Seismic Zone exposure in western Tennessee, Greenbelt Law agricultural use-value assessment and rollback on conversion, Nashville growth premium) each carry material risk if mishandled and should be addressed with a Tennessee-licensed attorney, a Tennessee-licensed CPA, and a Qualified Intermediary before identification, not after.

Federal authority: 26 U.S.C. §1031; 26 C.F.R. §1.1031(k)-1.

Tennessee authority: T.C.A. Title 67 (Taxes and Licenses), §67-4-409 (recordation tax), §67-5-1001 et seq. (Greenbelt Law); Hall Income Tax (repealed effective January 1, 2021).

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