Many investors know to expect to pay federal capital gains tax when they sell appreciated stocks, mutual funds, cryptocurrency, investment property, or other assets. But state taxes are often an afterthought, even though those levies can significantly impact your total tax bill.
Most states tax capital gains as ordinary income, while others have special rules, exemptions, or separate capital gains taxes. So, depending on where you live and how much you earn, your gains may escape state tax altogether or be taxed at rates as high as 10% or more.
Here’s more to know about state capital gains tax rates and how they could impact your total tax burden for 2026
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How capital gains tax works
The amount subject to tax is generally the difference between your purchase price (your cost basis) and the sale price.
Whether you owe tax, and how much, depends in part on how long you owned the asset.
- Short-term capital gains apply to assets held for one year or less and are generally taxed as ordinary income.
- Long-term capital gains apply to assets held for more than one year and typically qualify for lower federal tax rates.
While the federal government provides preferential tax rates for most long-term capital gains, many states don’t.
Instead, they generally include capital gains in taxable income and apply the state’s regular income tax rates. But…other states have their own rules or exemptions that are important to know.
State capital gains taxes
Bottom line first? Where you live can make a meaningful difference in your overall tax bill.
For example, investors in Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Wyoming, and New Hampshire generally pay no state tax on capital gains because those states don’t impose a broad individual income tax.
Missouri also now provides a 100% deduction for qualifying capital gains, effectively eliminating the state tax on those gains.
At the other end of the spectrum, taxpayers in states like California, Hawaii, New York, Oregon, Minnesota, and the District of Columbia may face some of the nation’s highest state tax rates on investment gains.
Washington also imposes a separate capital gains tax on certain high-dollar long-term gains rather than a traditional income tax.
Still, as mentioned, in most states, capital gains are taxed as ordinary income. As a result, the rates below generally represent the highest state income tax rate that could apply to capital gains for individuals in 2026.
Also, keep in mind:
- This table is based on the most recent 2026 state tax data from the Tax Foundation and state revenue department publications available as of mid‑2026.
- State tax rates and rules can change with new legislation or inflation adjustments that are filed late or implemented mid‑year.
- Some states have special capital gains deductions, tiered rates, or local taxes that are not captured by a single number or have unique rules or exemptions that may apply.
Capital Gains Tax Rates by State
|
State |
Capital Gains Tax Rate (2026) |
|---|---|
|
Alabama |
Up to 5% |
|
Alaska |
No state capital gains tax |
|
Arizona |
2.5% |
|
Arkansas |
3.7% rate with a 50% exclusion (Effective rate up to 1.85%) |
|
California |
Up to 13.3% |
|
Colorado |
4.4% |
|
Connecticut |
Up to 6.99% |
|
Delaware |
Up to 6.6% |
|
District of Columbia |
Up to 10.75% |
|
Florida |
No state capital gains tax |
|
Georgia |
4.99% |
|
Hawaii |
Up to 7.25% |
|
Idaho |
5.3% |
|
Illinois |
4.95% |
|
Indiana |
2.95% |
|
Iowa |
3.8% |
|
Kansas |
Up to 5.58% |
|
Kentucky |
3.5% |
|
Louisiana |
3% |
|
Maine |
Up to 7.15% |
|
Maryland |
Up to 5.75% plus local income taxes in some jurisdictions |
|
Massachusetts |
5% generally; higher effective rates may apply for certain gains and income above the surtax threshold |
|
Michigan |
4.25% |
|
Minnesota |
Up to 9.85% |
|
Mississippi |
4% |
|
Missouri |
0% for qualifying capital gains due to deduction |
|
Montana |
Capital gains taxed at 3.0%–4.1% in tiered brackets |
|
Nebraska |
4.55% |
|
Nevada |
No state capital gains tax |
|
New Hampshire |
No state capital gains tax |
|
New Jersey |
Up to 10.75% |
|
New Mexico |
Up to 5.9% (with capital gains deduction rules that can lower the effective rate) |
|
New York |
Up to 10.9% |
|
North Carolina |
3.99% |
|
North Dakota |
Up to 2.5% |
|
Ohio |
2.75% (state rate; many residents also pay local municipal income taxes that can add 1%–3%) |
|
Oklahoma |
4.5% |
|
Oregon |
Up to 9.9% |
|
Pennsylvania |
3.07% |
|
Rhode Island |
Up to 5.99% |
|
South Carolina |
Generally up to 5.21% |
|
South Dakota |
No state capital gains tax |
|
Tennessee |
No state capital gains tax |
|
Texas |
No state capital gains tax |
|
Utah |
4.5% |
|
Vermont |
Up to 8.75% |
|
Virginia |
Up to 5.75% |
|
Washington |
7% on taxable gains up to $1 million; 9.9% above $1 million (after standard deduction/exclusion) |
|
West Virginia |
Up to 4.82% |
|
Wisconsin |
Up to 7.65% |
|
Wyoming |
No state capital gains tax |
States with special capital gains rules
Note: Not every state with a special capital gains tax rule is listed here.
Massachusetts taxes capital gains at a 5% base rate, but high-income investors may pay more. A 4% “millionaire’s surtax” applies to income above $1,107,750 in 2026 and can affect certain gains, pushing the effective rate above 5% for some taxpayers.
Montana’s top ordinary income tax rate is 5.65%, but long-term capital gains are taxed at lower rates ranging from 3.0% to 4.1%.
New Mexico’s capital gains deductions can reduce the effective rate below its 5.9% top ordinary income tax rate.
South Carolina allows a 44% deduction on qualifying long-term capital gains.
As Kiplinger has reported, Washington imposes a separate capital gains tax, with taxable gains taxed at 7% up to $1 million and 9.9% above that threshold after applicable deductions.
Wisconsin offers a 30% exclusion for net long-term capital gains (60% for qualifying farm assets), and up to a 100% exclusion for long-term investments in qualified Wisconsin businesses.
In some states, local taxes can raise the overall burden. Maryland counties impose additional income taxes, while many Ohio residents pay municipal income taxes that can increase the total tax bill. Other jurisdictions, including the District of Columbia, may also impose local taxes.
What about states with no capital gains tax? Nine states do not impose a state capital gains tax: Alaska, Florida, Missouri, Nevada, New Hampshire, South Dakota, Tennessee, Texas, and Wyoming.
Missouri is a newer exception when it comes to capital gains taxes. As of last year, individuals can subtract 100% of federally reported capital gains from Missouri taxable income, effectively eliminating the state tax on qualifying capital gains.
Federal Capital Gains Tax Rates for 2026
As mentioned, state taxes are only part of the picture when it comes to navigating capital gains taxes. For federal taxes, most long-term capital gains qualify for one of three tax rates:
The rate you pay depends on your taxable income and filing status.
Taxpayers with higher incomes may also owe the 3.8% Net Investment Income Tax (NIIT) on top of their regular capital gains tax.
Short-term capital gains, meanwhile, are generally taxed at ordinary federal income tax rates rather than the preferential long-term rates.
Ways to reduce capital gains tax
While paying some tax on investment profits is often unavoidable, there are strategies you might consider to help reduce or potentially defer capital gains taxes.
Remember that every investor’s situation is different, so you may want to consult with a trusted financial planner or tax professional for strategies tailored to your circumstances.
Holding investments for more than one year. Long-term capital gains generally qualify for lower federal tax rates than short-term gains. Depending on your income, that difference can significantly reduce the tax owed on a sale.
Leveraging tax-advantaged accounts. Investments held in traditional IRAs, Roth IRAs, and many employer-sponsored retirement plans generally are not subject to annual capital gains taxes while the money remains in the account. Qualified Roth withdrawals can be taken tax-free.
Offsetting gains with investment losses. If you sell investments at a loss, those losses can be used to offset capital gains. “Tax loss harvesting” can reduce the amount of gain subject to tax and, in some cases, allow taxpayers to deduct up to $3,000 of excess losses against ordinary income each year. But don’t forget about the wash sale rule.
Considering the timing of a sale. Selling an asset in December instead of January — or vice versa — can affect which tax year the gain falls into. Taxpayers expecting a significant change in income might benefit from carefully planning when gains are realized.
