Connecticut Capital Gains Tax on Real Estate

By Skyline Capital Investments · Updated October 26, 2026 · 7 min read

Does Connecticut have a capital gains tax?

Connecticut capital gains tax on real estate is the state income tax applied to your gain, because Connecticut has no lower rate for long-term gains. Your Connecticut return starts from federal adjusted gross income, so the gain you report federally flows straight into the state calculation and is taxed with your wages, rent and other income.

The top rate is 6.99%, which applies above $500,000 of Connecticut taxable income for single filers and $1,000,000 for joint filers. On an apartment building sale, most sellers will see their income cross those lines.

Connecticut income tax brackets

These are the rates in the Department of Revenue Services’ 2025 Tax Calculation Schedule. The department’s 2026 employer guide says the 2026 withholding rules and tables are unchanged from 2025.

How Connecticut’s recapture pushes the rate past 6.99%

Connecticut takes back the benefit of its lower brackets as income rises, through two extra amounts on the tax calculation schedule. The first, Table C, phases out the 2% bracket: for joint filers it adds up to $500, fully reached at Connecticut AGI of $145,500, and up to $250 for single filers. The second, Table D, is called tax recapture: for joint filers it starts above $210,000 of Connecticut AGI and climbs to a maximum of $6,800 at $1,080,000; for single filers it tops out at $3,400 at $540,000.

Once both are fully phased in, a joint filer pays roughly 6.99% of all taxable income. While they are phasing in, each extra dollar of gain costs more than 6.99%, because the gain raises the tax on the dollars below it too. In our example below, the Connecticut tax on the sale works out to about 7.3% of the gain.

How Connecticut and federal capital gains tax stack

The federal and Connecticut taxes are figured separately and added together. Federal long-term gain is taxed at 0%, 15% or 20% depending on where it lands on top of your other taxable income, and Revenue Procedure 2025-32 sets the 2026 start of the 20% rate at $613,700 for joint filers and $545,500 for single filers. Gain equal to depreciation you claimed is unrecaptured Section 1250 gain, taxed federally at up to 25%.

The 3.8% net investment income tax applies to the lesser of your net investment income or the amount by which modified adjusted gross income exceeds $250,000 (joint) or $200,000 (single), unless the rental is part of a real estate professional’s business. Connecticut has no separate investment income surtax.

Connecticut tax is deductible on the federal return only as an itemized state and local tax deduction, which is capped, so on a sale this size most of the Connecticut tax brings no federal benefit.

Nonresidents and entity sales

A nonresident who sells Connecticut real estate owes Connecticut tax on the gain, because income attributable to the ownership or disposition of real property in Connecticut is Connecticut-source income. The seller files Form CT-1040NR/PY. Connecticut also taxes nonresidents on certain gains from selling an interest in an entity that owns Connecticut real property, a rule the department explains in Special Notice 2014(5), so selling the LLC instead of the building does not get around it.

We found no Connecticut statute that requires a buyer or closing attorney to withhold income tax when a nonresident sells Connecticut real estate. Section 12-705(c) of the General Statutes covers withholding only where the payer and the person paid agree to it. The nonresident pays the tax with the return or through estimated payments, so ask your CPA whether an estimated payment is due for the quarter of the sale.

If the building is held in a partnership or LLC that pays Connecticut’s pass-through entity tax, members claim a credit on their own return using Schedule CT-PE. Ask your CPA whether the entity paid that tax for the year of sale, since it changes what each member owes at filing.

Depreciation recapture and the bonus depreciation add-back

Connecticut taxes depreciation recapture at its regular income tax rates. There is no state equivalent of the federal 25% cap, so the split between Section 1250 gain and capital gain changes your federal tax only.

Basis can differ, though. Connecticut does not follow federal bonus depreciation: on the Form CT-1040 you add back 100% of the Section 168(k) bonus amount in the year taken and then subtract 25% of that add-back in each of the following years. You also add back 80% of any Section 179 deduction. If a cost segregation study gave you bonus depreciation in the last few years, some of the add-back may not have been recovered yet when you sell. Ask your CPA how the remaining amount is treated on the return for the year of sale, because it can lower your Connecticut gain compared with the federal figure.

Conveyance tax: the other sale cost

Connecticut also charges a real estate conveyance tax on the deed under section 12-494 of the General Statutes. The state share is 0.75% of the price in general and 1.25% for nonresidential property. For a residential property selling for $800,000 or more, the state rate is 0.75% on the first $800,000, 1.25% on the portion up to $2,500,000 and 2.25% above that. The town adds 0.25%, and targeted investment communities may add up to another 0.25%.

On a $2,000,000 sale, the state share is $21,000 at the residential tiers or $25,000 at the 1.25% nonresidential rate, plus $5,000 or more for the town. Ask your closing attorney which rate applies to your building. The tax is a selling cost that reduces the gain, but it is paid in cash at closing and a 1031 exchange does not defer it.

Worked example: selling a $2M apartment building in Connecticut

A married couple filing jointly sells an 18-unit building in New Haven for $2,000,000, with $110,000 of selling costs including commissions and conveyance taxes. They bought it for $1,050,000 and have claimed $380,000 of straight-line depreciation, leaving a basis of $670,000. Their gain is $1,220,000: $380,000 of unrecaptured Section 1250 gain and $840,000 of long-term capital gain. Their other income is $180,000, and the mortgage balance is $850,000.

Federal tax: the Section 1250 gain at 25% is $95,000. The $840,000 capital gain sits on top of $560,000 of income, so $53,700 is taxed at 15% ($8,055) and $786,300 at 20% ($157,260). The 3.8% net investment income tax applies to $1,150,000, the amount by which MAGI of $1,400,000 exceeds $250,000, for $43,700. Federal total: $304,015.

Connecticut tax: without the sale, the couple’s Connecticut tax on $180,000 is $8,900. With the sale, their income of $1,400,000 is past every phase-out, and the tax is $97,760. The sale adds $88,860, or about 7.3% of the gain. Combined tax is $392,875, about 32% of the gain. After repaying the loan, the couple nets $1,040,000 before tax and about $647,125 after.

The same sale for a single filer

A single owner with the same $180,000 of other income and the same $1,220,000 gain pays a little less to Connecticut and a little more federally. The Connecticut tax rises from $10,050 without the sale to $97,810 with it, an increase of $87,760, or about 7.2% of the gain. The single filer’s recapture tops out at $3,400 instead of $6,800, but the brackets are half as wide.

Federally, the single filer’s 20% rate starts at $545,500, so all $840,000 of capital gain is taxed at 20%, or $168,000. With $95,000 of Section 1250 tax and $45,600 of net investment income tax, the federal bill is $308,600, and the combined total is $396,360.

Short-term and long-term gains in Connecticut

Connecticut taxes short-term and long-term gains the same way, as part of Connecticut adjusted gross income at the regular rates. The one-year holding period matters only on the federal return, where short-term gain is taxed at ordinary federal rates of up to 37% instead of 15% or 20%.

That means a quick resale of a Connecticut building costs more federally but no more at the state level. Gains and losses also net on the federal return before they reach Connecticut, so a capital loss elsewhere in the same year reduces the Connecticut tax on the building gain as well.

How a 1031 exchange changes the Connecticut tax

A 1031 exchange defers Connecticut tax as well as federal tax, because the Connecticut return starts from federal adjusted gross income and a deferred gain never enters it. In the example, buying a replacement of at least $1,890,000 with all $1,040,000 of net cash reinvested would defer the full $392,875.

Connecticut has no clawback rule, so exchanging into another state does not trigger an annual Connecticut filing. Connecticut does regulate exchange intermediaries under its General Statutes, sections 36a-830 and following. Our page on the 1031 exchange in Connecticut covers both.

Cash you keep is boot and is taxed now by both governments. The 1031 exchange calculator and the capital gains tax calculator run the federal side with your own numbers.

Ways Connecticut sellers reduce the tax

Connecticut gives no rate break on real estate gains, so the tools are deferral and a smaller gain.

• A 1031 exchange, in Connecticut or out of state.
• An installment sale, which spreads gain over several years. Because of the recapture tables, spreading a gain can keep you out of the costliest phase-out ranges.
• Records of capital improvements, which raise basis and cut both the federal and Connecticut gain.
• Realizing losses on other investments in the same year. Capital losses net against the building gain on the federal return, and the lower federal AGI carries into Connecticut.
• Checking the bonus depreciation add-back. Any part of the Connecticut add-back you have not yet recovered matters to your Connecticut gain, so have your CPA reconcile the two depreciation schedules before you price the deal.
• Holding the property so heirs receive a stepped-up basis.

Selling a Connecticut apartment building

Skyline buys apartment buildings with five or more units in Connecticut, from Hartford and New Haven to Bridgeport, Waterbury and the Fairfield County towns. We buy directly, close on your timeline, and can work inside 1031 deadlines. If you are exchanging, we can set a closing date that gives you time to line up the replacement first.

For the yearly carrying cost a buyer will underwrite, see the property tax rate in Connecticut, and for tenant rules that affect a sale, Connecticut landlord-tenant law for apartment owners.