Does Idaho have a capital gains tax?
Idaho capital gains tax on real estate is part of the state income tax, charged at the same flat 5.3% rate as wages. What sets Idaho apart is the capital gains deduction in Idaho Code 63-3022H: an individual can deduct 60% of the capital gain net income from selling qualified Idaho property, which includes real property located in Idaho and held for at least 12 months.
For an apartment owner, that means only 40% of a qualifying gain is taxed, and 40% of 5.3% is 2.12%. The deduction does not cover property outside Idaho, short holds, or gain the Internal Revenue Code treats as ordinary income.
Idaho income tax rate for 2026
Idaho has one rate, 5.3%, set by Idaho Code 63-3024 as amended in 2025 (Session Laws 2025, chapter 13). It applies to taxable income above a small threshold, which the statute sets at $2,500 for single filers and $5,000 for joint returns and which the State Tax Commission indexes for inflation every year. Heads of household and surviving spouses use the joint threshold.
The holding period is the one date to watch. Real property must be held at least 12 months to qualify, and the federal long-term rates need more than one year as well. If you bought a building recently and an offer arrives near the anniversary of your purchase, check the closing date against your purchase date before you sign, since a sale a few weeks early can cost the whole deduction.
On a building sale, the threshold barely matters. Almost every dollar of taxable gain is taxed at 5.3%, and the planning question is how much of the gain the 60% deduction takes out first.
| Item | Idaho rule |
|---|---|
| Rate | 5.3% flat on taxable income above the indexed threshold |
| Long-term vs short-term gain | Same rate; only the 60% deduction depends on holding period |
| Capital gains deduction | 60% of capital gain net income from qualified Idaho property |
| Holding period for real property | At least 12 months |
| Effective rate on a fully qualifying gain | About 2.12% (40% of 5.3%) |
How the Idaho 60% capital gains deduction works
The deduction is 60% of the capital gain net income from the sale or exchange of qualified property, and qualified property must have an Idaho situs at the time of sale. For real estate, that means land and buildings located in Idaho, held at least 12 months. Gain on a partnership interest held 12 months, other than an interest in a publicly traded partnership, also qualifies, to the extent it comes from qualifying Idaho real property.
Three limits apply. The deduction cannot be larger than your capital gain net income from all property for the year, so capital losses elsewhere shrink it. It is reduced by any federal capital gains deduction on the same property. And gain that the Internal Revenue Code treats as ordinary income does not qualify, nor does property depreciated under Section 1245.
You do not have to own the building in your own name. The statute allows the property to be held by an individual, a partnership, an LLC, an S corporation, a trust or an estate, with the deduction claimed by the individual who reports the gain.
How Idaho and federal capital gains tax stack
You pay both, figured separately. Federal long-term gain is taxed at 0%, 15% or 20%, depending on where it falls on top of your other taxable income. Revenue Procedure 2025-32 puts the start of the 20% rate for 2026 above $613,700 of taxable income on a joint return and above $545,500 for a single filer.
Depreciation you claimed comes back federally as unrecaptured Section 1250 gain, taxed at up to 25%. The 3.8% net investment income tax applies once modified adjusted gross income passes $250,000 for joint filers or $200,000 for single filers, unless the rental is part of a qualifying real estate professional’s business.
Idaho has no investment income surtax. Because the 60% deduction is so large, federal tax dominates the bill on an Idaho sale: in the worked example below it is almost 12 times the Idaho tax. Idaho ties its tax code to the Internal Revenue Code as in effect on January 1, 2026, so the federal figures on your return carry into the state calculation.
Depreciation recapture and the Idaho deduction
Idaho has no separate recapture rate: any gain that stays in taxable income is taxed at 5.3%. What matters is whether recapture qualifies for the 60% deduction, and the statute excludes gain treated as ordinary income under the Internal Revenue Code.
For a building depreciated straight-line, there is usually no ordinary-income recapture. The depreciation comes back as unrecaptured Section 1250 gain, which federal law treats as capital gain taxed at up to 25%. The picture changes if a cost segregation study moved part of the cost into 5-, 7- or 15-year property. Gain on those Section 1245 assets is ordinary income up to the depreciation taken, and Idaho Code 63-3022H says Section 1245 property cannot count as real property for the deduction. Ask your CPA to split the sale price among asset classes before you estimate the Idaho tax.
Nonresidents selling Idaho property
Nonresidents owe Idaho tax on gain from Idaho real estate. Idaho Code 63-3026A counts income from the ownership or disposition of real property located in Idaho as Idaho-source income, so a seller living in Washington, Oregon or California files an Idaho nonresident return for the year of the sale.
The 60% deduction turns on where the property is, not where you live, and the statute leaves the calculation for part-year residents and nonresident owners of multistate entities to Tax Commission rules. If you live elsewhere, your home state may tax the same gain and give you a credit for some or all of the Idaho tax, so run both returns before you set your price.
Worked example: selling a $2M apartment building in Idaho
A married couple filing jointly sells a 20-unit building in Boise for $2,000,000 after owning it for 11 years. Selling costs are $90,000, so the amount realized is $1,910,000. They paid $1,000,000 and have taken $300,000 of straight-line depreciation, leaving an adjusted basis of $700,000. The gain is $1,210,000: $300,000 of unrecaptured Section 1250 gain and $910,000 of long-term capital gain, with no gain treated as ordinary income. Their other taxable income is $500,000, and the building carries an $800,000 loan.
Federal tax: with other income already in the 32% bracket, the $300,000 of Section 1250 gain is taxed at the 25% cap, $75,000. The $910,000 capital gain lands entirely above $613,700 and is taxed at 20%, $182,000. The 3.8% net investment income tax adds $45,980. Federal total: $302,980.
Idaho tax: the 60% deduction removes $726,000, leaving $484,000 taxable at 5.3%, or $25,652. Without the deduction, Idaho would take $64,130, so the deduction saves $38,478. Combined tax is $328,632, about 27% of the gain. After paying off the loan, the couple has $1,110,000 before tax and $781,368 after.
| Item | Amount |
|---|---|
| Sale price | $2,000,000 |
| Selling costs | $90,000 |
| Adjusted basis | $700,000 |
| Total gain | $1,210,000 |
| Federal Section 1250 tax (25%) | $75,000 |
| Federal capital gains tax (20%) | $182,000 |
| Net investment income tax (3.8%) | $45,980 |
| Idaho tax (5.3% on 40% of gain) | $25,652 |
| Total tax | $328,632 |
How a 1031 exchange changes the Idaho tax
A properly structured 1031 exchange defers the Idaho tax along with the federal tax, because Idaho starts from federal taxable income and follows the Internal Revenue Code. In the example, buying a replacement worth at least $1,910,000 and reinvesting all $1,110,000 of net cash would defer the full $328,632.
Where you buy matters more in Idaho than in most states. Idaho has no clawback, but the 60% deduction only applies to property with an Idaho situs when it is sold. An Idaho resident who trades a Boise building for one in Spokane or Salt Lake City and later sells the replacement would, as the statute reads, pay Idaho’s 5.3% on the whole gain, not on 40% of it. Our page on the 1031 exchange in Idaho walks through that trade-off and Idaho’s rules for qualified intermediaries.
Cash you keep in a partial exchange is boot and is taxed now, with the 60% deduction available if it qualifies. The 1031 exchange calculator and the capital gains tax calculator run the federal side with your numbers.
Ways Idaho sellers reduce the tax
Because Idaho already taxes only 40% of a qualifying gain, most savings come from the federal side.
- Hold at least 12 months. A sale at 11 months loses the Idaho deduction and the federal long-term rates.
- A 1031 exchange into Idaho property defers everything and keeps the deduction available for the eventual sale.
- An installment sale spreads the federal gain and can keep more of it out of the 20% bracket in each year.
- Holding until death gives heirs a stepped-up basis for both federal and Idaho purposes.
- Keep records of capital improvements, which raise basis and cut the gain at both levels.
Selling an Idaho apartment building
Skyline buys apartment buildings with five or more units in Idaho, including Boise, Meridian, Nampa, Idaho Falls and Coeur d’Alene. We buy directly, close on your timeline, and can work inside 1031 deadlines. If you plan an exchange, we can set the closing date to give you time to find the replacement and work with your intermediary on the contract.
For the yearly tax bill a buyer will underwrite, see the property tax rate in Idaho. For deposit, notice and eviction rules that come with the building, see Idaho 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.
Get A Seller-Carry Offer
