Indiana Capital Gains Tax on Real Estate

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

Does Indiana have a capital gains tax?

Indiana has no tax aimed only at capital gains. A gain on an apartment building flows into Indiana adjusted gross income and is taxed at the same flat rate as wages and rent. The Indiana Department of Revenue lists that rate as 2.95% for 2026, with a further cut to 2.90% scheduled for 2027.

The state rate is only part of the bill. Each of Indiana’s 92 counties levies a local income tax, and for residents it applies to the same Indiana adjusted gross income, gain included. A seller in Indianapolis pays 2.95% to the state and 2.02% to Marion County, or 4.97% of the gain in all.

Indiana county income tax on a property sale

Your county rate is set by where you lived on January 1 of the tax year, according to the Department of Revenue’s Departmental Notice #1. A move in March does not change the county that taxes a sale closed in June.

The county tax base for a resident is Indiana adjusted gross income, as defined in IC 6-3.6-2-2, so it picks up the full gain. Nonresidents are treated differently: their county tax reaches only income from their principal place of business or employment in an Indiana county. An Illinois resident selling a building in Gary owes Indiana’s 2.95% on the gain but generally not Lake County’s rate, unless the gain is tied to a principal place of business there.

The table shows rates in effect from October 1, 2026 for the largest counties and the two ends of the range.

How Indiana tax stacks with federal capital gains tax

Indiana starts from federal adjusted gross income, so the same gain lands on both returns and the two taxes simply add up. The federal side is several times larger.

Federal long-term capital gain is taxed at 0%, 15% or 20%. Under IRS Revenue Procedure 2025-32, the 20% rate starts in 2026 at $613,700 of taxable income on a joint return and $545,500 for a single filer. Gain equal to the depreciation you took is unrecaptured Section 1250 gain, taxed federally at up to 25%. The 3.8% net investment income tax applies to the smaller of your net investment income or the amount your modified adjusted gross income exceeds $250,000 on a joint return ($200,000 single).

Indiana treats all of those pieces the same. Short-term gain, long-term gain and recaptured depreciation are all taxed at 2.95% plus your county rate. The one-year holding period and the 25% recapture rate matter only federally.

Depreciation recapture and Indiana’s bonus depreciation rule

Indiana has no separate recapture rate, but it does keep its own depreciation records. Indiana does not follow federal bonus depreciation. IC 6-3-1-3.5, as reprinted in Senate Bill 243 of 2026, requires an adjustment so Indiana income reflects the depreciation you would have taken without a Section 168(k) election, and it adds back Section 179 expense above $25,000.

That matters at sale. If you ran a cost segregation study and took bonus depreciation on carpets, appliances and site work, your federal basis dropped faster than your Indiana basis. When you sell, the Indiana gain can be smaller than the federal gain because part of the depreciation was never allowed in Indiana in the first place. Keep the Indiana depreciation schedule with your closing file so your preparer can figure the right Indiana number. The Department of Revenue’s Information Bulletin #119 confirms that Indiana’s disallowance of bonus depreciation also covers qualified improvement property.

Senate Bill 243, signed March 5, 2026, moved Indiana’s Internal Revenue Code reference date to January 1, 2026 in IC 6-3-1-11, while keeping the bonus depreciation decoupling in place.

Selling Indiana property as a nonresident or through an LLC

Nonresidents owe Indiana tax on Indiana gains. IC 6-3-2-2(a) counts income from real property located in Indiana as Indiana-source income, so a Chicago or Louisville investor who sells an Evansville building files an Indiana nonresident return for the year of the sale.

We found no Indiana rule that makes the title company withhold state income tax from an individual seller’s proceeds. Entity ownership is different. Under the Department of Revenue’s Information Bulletin #72, partnerships, S corporations and trusts with nonresident owners must withhold Indiana tax on those owners’ shares and file a composite return. If your building sits in a multi-member LLC with out-of-state members, the sale year return will need that withholding, and members can usually claim credit for it on their own filings.

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

A married couple living in Marion County sells a 32-unit building on the east side of Indianapolis for $2,000,000 and pays $110,000 in selling costs, so the amount realized is $1,890,000. They bought it for $1,100,000 and have claimed $360,000 of straight-line depreciation, leaving an adjusted basis of $740,000. The gain is $1,150,000: $360,000 of unrecaptured Section 1250 gain and $790,000 of long-term capital gain. They have $180,000 of other taxable income and owe $900,000 on the mortgage.

Federal tax: the Section 1250 gain is figured at the 25% maximum, $90,000. The capital gain stacks on $540,000 of income, so $73,700 is taxed at 15% ($11,055) and $716,300 at 20% ($143,260). Modified adjusted gross income reaches $1,330,000, so the 3.8% tax applies to $1,080,000, or $41,040. Federal total: $285,355.

Indiana tax: 2.95% of $1,150,000 is $33,925, and Marion County’s 2.02% adds $23,230, for $57,155. All in, the couple owes $342,510, about 29.8% of the gain. After repaying the loan they net $990,000 before tax and about $647,490 after. The same couple living in Hamilton County would owe $12,650 of county tax instead of $23,230.

How a 1031 exchange changes the Indiana tax

A 1031 exchange defers the Indiana and county tax along with the federal tax. Indiana follows federal adjusted gross income, and gain deferred under Section 1031 never enters it. In the example, buying a replacement for at least $1,890,000 and reinvesting the full $990,000 of net proceeds would push all $342,510 into the future.

Indiana has no clawback. California, Massachusetts, Montana and Oregon track deferred gain after an owner exchanges out of state, but Indiana does not, so a seller who trades a Bloomington building for one in Nashville has no annual Indiana form to file. Cash you keep, and mortgage debt you don’t replace, is boot and is taxed by the IRS, Indiana and your county in the year of sale. Our page on the 1031 exchange in Indiana covers the state rules in more detail.

Indiana compared with neighboring states

Indiana’s 2.95% state rate is one of the lower flat rates in the Midwest, but the county tax closes much of the gap. The table compares the 2026 state rates that apply to a real estate gain in Indiana and the four states around it, using each state’s revenue department or statute.

For an Indiana resident, the fair comparison adds the county rate. A Marion County seller’s 4.97% combined rate sits above Kentucky’s 3.5% and Ohio’s 2.75% state rates and close to Illinois at 4.95%. A Porter County seller, at 3.45% combined, is below every neighbor’s state rate except Ohio’s. Ohio has school district income taxes, Michigan has city income taxes in places such as Detroit and Grand Rapids, and many Kentucky cities and counties levy occupational license taxes, so compare the full local picture before you treat a move across a state line as a saving.

A nonresident still owes Indiana on an Indiana building. Because Indiana taxes income from real property located in the state, an owner who moved to Florida or Tennessee years ago and sells an Indianapolis property pays the 2.95% state rate on that gain, even though the home state has no income tax.

Planning around the Indiana rate

Timing can trim the Indiana bill a little. The state rate is scheduled to fall from 2.95% to 2.90% in 2027, which saves $500 per $1 million of gain. That is small next to the federal tax, so don’t let it drive the closing date on its own.

County residence matters more. Because your county is fixed on January 1, an owner who already plans to move from a 2%-plus county to a lower-rate county before year end may save more by closing the following year. An installment sale spreads the gain over several years and can keep more of it out of the 20% federal bracket, and a building held until death passes to heirs with a stepped-up basis.

County rates can change. Senate Enrolled Act 1 of 2025 reorganizes Indiana’s local income taxes, and the DLGF says the new structure takes effect July 1, 2027, so check the rate for the year you expect to close. One cost Indiana does not add: we found no state or county real estate transfer tax. The main state charge when a deed is filed is the $20 sales disclosure form fee under IC 6-1.1-5.5-4.

Selling an Indiana apartment building

Skyline buys apartment buildings with five or more units in Indiana, from Indianapolis and Fort Wayne to South Bend, Evansville and Lafayette. We buy directly, close on your timeline, and can work inside 1031 deadlines. If you plan an exchange, we can set a closing date that leaves room to line up the replacement and we coordinate with your intermediary.

For the carrying cost a buyer will model, see our page on the property tax rate in Indiana, and for the rules that come with the tenants, Indiana landlord-tenant law for apartment owners.