Does Arkansas have a capital gains tax?
Arkansas capital gains tax is part of the regular income tax, but only half of a net capital gain is taxed. On Form AR1000D, the Department of Finance and Administration has you multiply your Arkansas net capital gain by 50% to get the taxable amount, and the form caps the gain you carry into that step at $10,000,000. Net capital gain above $10 million is exempt from Arkansas tax.
The taxable half is added to your other income and taxed at the regular rates. For 2026, the top rate is 3.7%, so the Arkansas tax on a long-term gain works out to at most 1.85% of the gain. For an owner selling a building in Little Rock, Fayetteville or Fort Smith, that is one of the lower state bills in the country for a state with an income tax.
Arkansas income tax rates for 2026
Arkansas cut its top individual rate to 3.7% for tax years beginning on or after January 1, 2026. Act 1 of the 2026 First Extraordinary Session, House Bill 1001, was approved on May 6, 2026, and applies back to the start of the year. The top rate had been 3.9%, and the Department’s original 2026 withholding formula, issued before the act, still used 3.9%.
For net income above $94,700, the act taxes the first $4,700 at 2% and the rest at 3.7%, with a small bracket adjustment for net income between $94,701 and $97,600. For anyone selling a $2 million building, 3.7% is the rate that matters. The same act lowers the corporate top rate to 4.1% starting with tax year 2027.
| Arkansas net income (2026) | Rate |
|---|---|
| $0 to $5,599 | 0% |
| $5,600 to $11,199 | 2% |
| $11,200 to $15,999 | 3% |
| $16,000 to $26,399 | 3.4% |
| $26,400 to $94,700 | 3.7% |
| Over $94,700 | First $4,700 at 2%, the rest at 3.7% |
How the 50% exclusion and $10 million cap work
Form AR1000D starts from the long-term and short-term capital gains on your federal Schedule D and adjusts them for any difference between federal and Arkansas depreciation. The long-term gain, less any net short-term loss, is your Arkansas net capital gain; net short-term gain is added separately on line 11 and taxed in full. If the net capital gain is more than $10,000,000, you enter only $10,000,000, and you then multiply that figure by 50%.
So the largest amount of capital gain Arkansas can tax from one year’s sales is $5,000,000. A seller with a $14 million gain pays Arkansas tax on $5 million of it, the same as a seller with a $10 million gain. For most apartment sales the cap will not come into play, but for a large portfolio sale it can save a meaningful amount.
| Net capital gain | Arkansas taxable amount | Tax at 3.7% |
|---|---|---|
| $500,000 | $250,000 | $9,250 |
| $1,000,000 | $500,000 | $18,500 |
| $5,000,000 | $2,500,000 | $92,500 |
| $14,000,000 | $5,000,000 | $185,000 |
How Arkansas treats depreciation recapture
Straight-line depreciation on the building is unrecaptured Section 1250 gain, which is still long-term capital gain on the federal Schedule D, so it flows into Form AR1000D and gets the 50% exclusion. Section 1245 recapture on personal property, such as appliances and flooring from a cost segregation study, is reported as ordinary income on federal Form 4797. It is not capital gain, so expect Arkansas to tax it in full at up to 3.7%. The Department’s form instructions do not address recapture directly, so confirm the split with your preparer.
Arkansas depreciation can also differ from federal. Form AR1000D notes that Arkansas did not adopt federal bonus depreciation, and it has lines to adjust gain for the difference. If you took bonus depreciation federally, your Arkansas basis is higher than your federal basis, and your Arkansas gain on the sale is lower. Ask your preparer for a separate Arkansas depreciation schedule before you estimate the state tax.
How Arkansas tax stacks on federal tax
Federal tax is by far the larger share of the bill on an Arkansas sale. For 2026, IRS Revenue Procedure 2025-32 sets the 20% long-term capital gains rate above $613,700 of taxable income for married couples filing jointly and above $545,500 for single filers. The 0% rate runs to $98,900 joint and $49,450 single, with 15% in between.
Unrecaptured Section 1250 gain is taxed federally at up to 25%, and Section 1245 recapture at ordinary rates up to 37%. The 3.8% net investment income tax applies once modified adjusted gross income passes $250,000 joint or $200,000 single.
| Part of the gain | Federal rate (2026) | Arkansas rate (2026) |
|---|---|---|
| Appreciation above original cost (held over a year) | 0%, 15% or 20% | Half taxed at up to 3.7% (1.85% effective) |
| Straight-line depreciation (unrecaptured 1250 gain) | Up to 25% | Half taxed at up to 3.7% (1.85% effective) |
| Section 1245 recapture on personal property | Ordinary rates up to 37% | Up to 3.7% on the full amount |
| Net investment income tax | 3.8% above the MAGI thresholds | None |
Worked example: selling a $2 million apartment building in Arkansas
A married couple sells a 26-unit building in Little Rock for $2,000,000 in 2026. Selling costs are $70,000, so the amount realized is $1,930,000. They paid $1,100,000 and have taken $300,000 of depreciation, the same for federal and Arkansas purposes: $250,000 straight-line on the building and $50,000 on personal property. Adjusted basis is $800,000 and the gain is $1,130,000. Their other taxable income is $410,000.
Federal tax: the $50,000 of Section 1245 recapture falls in the 32% bracket, or $16,000. The $250,000 of unrecaptured Section 1250 gain is taxed at 25%, or $62,500. The remaining $830,000 sits above the $613,700 threshold and is taxed at 20%, or $166,000. The 3.8% net investment income tax on the full gain adds $42,940. Federal tax is $287,440.
Arkansas tax: the $1,080,000 of long-term capital gain is cut in half to $540,000, and at 3.7% that is $19,980. The $50,000 of Section 1245 recapture is taxed in full at 3.7%, or $1,850. Arkansas tax is $21,830. Without the 50% exclusion, the full $1,130,000 at 3.7% would cost $41,810, so the exclusion saves this couple $19,980.
Their total bill is about $309,270, around 16% of the amount realized, and about 93% of it is federal. The capital gains tax calculator runs the federal side for your own figures.
| Item | Amount |
|---|---|
| Amount realized | $1,930,000 |
| Total gain | $1,130,000 |
| Federal tax | $287,440 |
| Arkansas tax | $21,830 |
| Arkansas tax without the 50% exclusion | $41,810 |
| Total tax | $309,270 |
How a 1031 exchange changes the picture in Arkansas
Arkansas recognizes like-kind exchanges of real estate. Under Arkansas Code 26-51-412 and the Department’s income tax rule on exchanges, no gain is recognized when real estate held for investment or business is exchanged for other real estate. A full exchange in the example would defer the $287,440 of federal tax and the $21,830 of Arkansas tax.
With the state taking at most 1.85% of long-term gain, the federal deferral is the main reason to exchange. Arkansas is not one of the four states with a clawback rule, so exchanging into property in Texas, Oklahoma or Tennessee creates no ongoing Arkansas tracking filing. Any cash or debt relief you keep is boot, taxed federally and, for its capital gain part, at half the Arkansas rate. Our page on the 1031 exchange in Arkansas covers the state details, and the 1031 exchange rules page covers the deadlines.
What the 2026 rate cut means for a sale
The cut from 3.9% to 3.7% is small per dollar, but it applies to every sale that closes in 2026, including sales that closed before the act was approved in May. In the Little Rock example, the same sale taxed at the prior top rate of 3.9% would have owed about $23,010 to Arkansas, so the 2026 rate saves about $1,180.
If you sold earlier in 2026 and made estimated payments figured at 3.9%, the extra is credited against your 2026 tax when you file. Owners making estimated payments for a sale late in the year can use 3.7% for the taxable half of the gain.
Installment sales and seller financing in Arkansas
An installment sale spreads the federal gain over the years you collect principal, and the capital gain part of each year’s payment flows through Form AR1000D for that year, so half of it is taxed in Arkansas. Spreading a sale can keep more of the gain in the federal 15% bracket or below the net investment income tax threshold.
Spreading the gain across years can also matter for the $10 million cap, since the form applies the cap to each year’s Arkansas net capital gain; ask your CPA how that works for your figures before you structure a very large sale. Interest on the note is ordinary income taxed at up to 3.7%, and Section 1245 recapture is reported in full in the year of sale regardless of the payment schedule.
Planning points for an Arkansas sale
Most Arkansas planning comes down to the share of the gain that is not capital gain and to depreciation records.
- Ask for a separate Arkansas depreciation schedule; skipped bonus depreciation means a lower Arkansas gain.
- Watch the price allocation to personal property, since Section 1245 recapture does not get the 50% exclusion.
- Hold the building more than a year so the gain is long-term; Form AR1000D applies the 50% exclusion to net long-term gain and taxes short-term gain in full.
- For a very large sale, check whether the $10 million cap applies and whether combining sales in one year changes the result.
- Run federal choices first: a 1031 exchange, a Delaware statutory trust or an installment sale moves far more tax than any Arkansas step.
Selling an Arkansas apartment building to Skyline
Skyline buys apartment buildings with five or more units in Arkansas, from Little Rock and North Little Rock to Northwest Arkansas, Fort Smith and Jonesboro. We buy directly, close on your timeline, and can work inside 1031 deadlines. A firm closing date helps your CPA plan the federal side and line up any exchange.
For the tax a buyer will carry after closing, see property tax rate in Arkansas. For the tenant rules that come with the building, see Arkansas landlord-tenant law for apartment owners.
Selling? Spread the tax with seller-carry terms
If a large tax bill is what is keeping you from selling, an installment sale may help. When you carry part of the price as a note, the gain is generally reported as you receive payments instead of all in the year of sale. Some parts of the gain, such as certain depreciation recapture, can still be due up front, so run the numbers with your CPA first.
Skyline Capital Investments buys apartment buildings with five or more units and can offer seller-carry terms, or a delayed closing that fits your 1031 timeline. Send the address and unit count and we typically respond within 48 hours. How seller financing works · How an installment sale is taxed · Seller financing calculator.
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