How do states tax capital gains?
Most states tax capital gains as ordinary income, at the same rates they apply to wages. Only a handful give long-term gains any break.
Sorted by how they treat a gain on a building, the states fall into four groups. The table below shows where each one lands for tax year 2026, and the link grid under this guide opens the detailed page for your state.
- No tax on the gain: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas and Wyoming have no tax on individuals’ capital gains. Washington taxes capital gains but exempts real estate.
- Flat rate on everything: states such as Pennsylvania (3.07%), North Carolina (3.99%), Illinois (4.95%) and Utah (4.45%) tax the whole gain at one rate.
- Graduated ordinary rates: California, New York, New Jersey, Oregon and Minnesota put most of a large gain in their top brackets, from 9.85% to 13.3%.
- Partial exclusion or special rate: Arizona, Arkansas, Idaho, North Dakota, South Carolina, Vermont and Wisconsin exclude part of the gain, and Oklahoma deducts qualifying gain on Oklahoma property held five years. Montana and Hawaii use lower capital gains rates, Massachusetts has a separate 5% rate, and Missouri now subtracts the whole capital gain.
Capital gains tax by state: 2026 table
This table shows the state rate that applies to the top slice of a large gain on investment real estate held more than a year, for a resident individual. Where a state excludes part of the gain, the effective rate on the gain is shown next to the statutory rate. Local income taxes are noted but not added in.
| State | How it taxes capital gains | Top 2026 rate on a large real estate gain | Special rules for real estate |
|---|---|---|---|
| Alabama | Ordinary income | 5% | Federal income tax is deductible, which lowers the real rate |
| Alaska | No income tax | 0% | None |
| Arizona | Flat income tax | 2.5%; about 1.875% after subtraction | 25% of net long-term gain on assets bought after 2011 subtracted |
| Arkansas | Half of net capital gain taxed | 3.7% on half; about 1.85% | 50% exclusion; net gain over $10 million exempt |
| California | Ordinary income | 13.3% | 1% extra above $1 million; 3⅓% withholding at closing |
| Colorado | Flat income tax | 4.4% | No general subtraction for rental property |
| Connecticut | Ordinary income | 6.99% | High earners lose the benefit of lower brackets |
| Delaware | Ordinary income | 6.6% | Nonresidents prepay tax before the deed records |
| Florida | No personal income tax | 0% | C corporations owe 5.5% corporate tax |
| Georgia | Flat income tax | 4.99% | 3% nonresident withholding on price or gain |
| Hawaii | Ordinary income, capped | 7.25% | Alternative rate keeps gains below the 11% top rate |
| Idaho | Flat income tax | 5.3%; about 2.12% after deduction | 60% deduction for Idaho real property held 12+ months |
| Illinois | Flat income tax | 4.95% | None |
| Indiana | Flat state tax plus county tax | 2.95% plus county | County income taxes add about 0.5% to 3% |
| Iowa | Flat income tax | 3.8% | Capital gain deduction no longer covers most rentals |
| Kansas | Ordinary income | 5.58% | None |
| Kentucky | Flat income tax | 3.5% | None |
| Louisiana | Flat income tax | 3% | Net capital gain deduction repealed from 2025 |
| Maine | Ordinary income | 7.15% plus 2% surcharge | 2% on income over $1 million single, $1.5 million joint |
| Maryland | Ordinary income plus county tax | 6.5% plus 2% plus county | 2% on net capital gain when federal AGI tops $350,000 |
| Massachusetts | Separate 5% long-term rate | 9% (5% plus 4% surtax) | 4% surtax on income over $1,107,750 |
| Michigan | Flat income tax | 4.25% | Some cities add an income tax |
| Minnesota | Ordinary income plus investment tax | 10.85% (9.85% plus 1%) | 1% on net investment income over $1 million |
| Mississippi | Flat income tax | 4% | Rate scheduled to fall each year to 3% by 2030 |
| Missouri | Capital gain subtracted | 0% on capital gain | 100% subtraction since 2025; ordinary recapture still taxed |
| Montana | Separate capital gains rates | 4.1% | 3% and 4.1% rates, below the 5.65% ordinary top rate |
| Nebraska | Ordinary income | 4.55% | Scheduled to drop to 3.99% in 2027 |
| Nevada | No personal income tax | 0% | None |
| New Hampshire | No tax on individuals | 0% | 7.5% Business Profits Tax can reach rental businesses |
| New Jersey | Ordinary income | 10.75% | Top rate starts at $1 million |
| New Mexico | Ordinary income | 5.9% | Deduction capped at $2,500 for most sales |
| New York | Ordinary income | 10.9% | Top bracket starts at $25 million; New York City adds its own tax |
| North Carolina | Flat income tax | 3.99% | None |
| North Dakota | Ordinary income after exclusion | 2.5%; about 1.5% after exclusion | 40% of net long-term gain excluded |
| Ohio | Flat income tax | 2.75% (3% on business income) | $250,000 business income deduction |
| Oklahoma | Ordinary income | 4.5% | Deduction for Oklahoma property held 5+ years |
| Oregon | Ordinary income | 9.9% | None |
| Pennsylvania | Flat income tax | 3.07% | No lower rate for long holds |
| Rhode Island | Ordinary income | 5.99% | Surtax on income over $1 million starts in 2027 |
| South Carolina | Ordinary income after deduction | 5.21%; about 2.92% after deduction | 44% deduction of net capital gain |
| South Dakota | No personal income tax | 0% | None |
| Tennessee | No tax on individuals | 0% | LLCs and LPs owe 6.5% excise tax on gain |
| Texas | No personal income tax | 0% | Franchise tax can reach entity sellers |
| Utah | Flat income tax | 4.45% | None |
| Vermont | Ordinary income after exclusion | 8.75% | 40% exclusion on assets held 3+ years, capped at $350,000 |
| Virginia | Ordinary income | 5.75% | None |
| Washington | Capital gains excise; real estate exempt | 0% on real estate | 7% and 9.9% apply to stocks and other assets |
| West Virginia | Ordinary income | 4.58% | None |
| Wisconsin | Ordinary income after exclusion | 7.65%; about 5.36% after exclusion | 30% exclusion for assets held more than a year |
| Wyoming | No personal income tax | 0% | None |
Which states tax a real estate gain the most and the least?
California taxes a large real estate gain the most, at up to 13.3%, followed by New York, Minnesota and New Jersey in the 10.75% to 10.9% range. Maryland can reach the same territory once its 2% capital gains tax and a county tax of up to 3.3% are added to the 6.5% state rate.
Among states with an income tax, North Dakota, Arkansas, Arizona and Idaho take the smallest share, roughly 1.5% to 2.1% of a long-term gain after their exclusions. Missouri goes further: since 2025 it lets individuals subtract 100% of the income reported as capital gain on the federal return, which leaves only ordinary depreciation recapture taxed at its regular rates.
State surtaxes that hit large gains in 2026
A building sale often pushes a seller over a state’s millionaire line for one year, and several states now add a surtax at that line. These matter more than the base rate on a seven-figure gain.
| State | Surtax | Applies to |
|---|---|---|
| California | 1% | Taxable income over $1 million |
| Massachusetts | 4% | Taxable income over $1,107,750 for 2026 |
| Minnesota | 1% | Net investment income over $1 million |
| Maine | 2% | Income over $1 million single, $1.5 million joint, starting 2026 |
| Maryland | 2% | Net capital gain when federal AGI exceeds $350,000 |
| Rhode Island | 1% in 2027, rising to 3% by 2029 | Taxable income over $1 million |
Worked example: the same $1,000,000 gain in five states
Take a married couple who sell an apartment building they have owned for twelve years and report a $1,000,000 long-term gain, all from straight-line depreciation and appreciation with no cost segregation. They already have $200,000 of other taxable income, so every dollar of the gain lands in each state’s top bracket. They live in the state where the building sits.
In Texas the state tax is $0. In Idaho, 60% of the gain is deducted, so 5.3% applies to $400,000 for $21,200. Pennsylvania charges 3.07% on the full gain, or $30,700, and North Carolina charges 3.99%, or $39,900. In Massachusetts the 5% long-term rate costs $50,000, and because the sale lifts their income to $1,200,000, the 4% surtax applies to the $92,250 above $1,107,750, adding $3,690 for a total of $53,690.
The federal bill is essentially the same in all five states, since the federal deduction for state taxes is capped. So the choice of state alone moves the total tax on this sale by $53,690.
| State | Gain taxed by the state | Rate | State tax |
|---|---|---|---|
| Texas | $0 | 0% | $0 |
| Idaho | $400,000 (after 60% deduction) | 5.3% | $21,200 |
| Pennsylvania | $1,000,000 | 3.07% | $30,700 |
| North Carolina | $1,000,000 | 3.99% | $39,900 |
| Massachusetts | $1,000,000 plus $92,250 surtax base | 5% plus 4% | $53,690 |
Residency vs source: which state taxes your gain?
The state where the property sits can tax the gain even if you live somewhere else. Real estate is sourced to its location, so a Texas resident who sells a building in Oregon files an Oregon nonresident return and pays Oregon tax on that gain.
Your home state taxes residents on income from everywhere, but most states with an income tax give a credit for tax paid to the state where the property is. In practice you usually pay the higher of the two rates, not both in full. If your home state has no income tax, you simply pay the property state.
Many states collect at closing. California withholds 3⅓% of the sales price on most sales over $100,000 from residents and nonresidents alike, unless an exemption or the gain-based alternative applies. Georgia withholds 3% of the price from nonresident sellers, or 3% of the gain if the seller files an affidavit. Massachusetts withholds 4% of the price on nonresident sales of $1,000,000 or more, plus 4% of the amount over the surtax threshold, with a gain-based alternative. Withholding is a prepayment credited on your return, not an extra tax.
How this works for a 5+ unit apartment building
For an apartment building, three state issues come up beyond the headline rate. First, states don’t copy the federal 25% cap on unrecaptured Section 1250 gain, so the depreciation part of the gain is usually taxed at the full state rate, and the exclusions in Idaho, Vermont and similar states don’t reach ordinary Section 1245 recapture from a cost segregation study.
Second, ownership matters. A building held in an LLC taxed as a partnership passes the gain to the members, and many states require the entity to withhold on nonresident members. In states without an individual income tax, the entity itself can still owe tax: Tennessee’s 6.5% excise tax, New Hampshire’s Business Profits Tax and the Texas franchise tax all reach some apartment owners.
Third, a 1031 exchange defers state tax as well as federal tax in every state that taxes the gain, but California, Massachusetts, Montana and Oregon keep the right to tax the deferred gain if you trade into another state. An installment sale can also spread the state tax, and a stepped-up basis at death wipes it out for heirs.
Selling your apartment building to Skyline
Skyline Capital Investments buys apartment buildings with five or more units nationwide, and we work with 1031 timelines and seller-carry terms when they help a seller’s state and federal tax picture. Your CPA can model the bill for your state before you sign, using the price and terms in our letter of intent.
Send the address and unit count through the form on this page or call (469) 660-2977. We typically respond within 48 hours. Then open your state’s capital gains page in the grid below for the full rules where your building sits.
