Does New Mexico have a capital gains tax?
New Mexico capital gains tax on real estate is the state personal income tax applied to your gain. There is no separate capital gains rate. A gain on an Albuquerque fourplex or a Las Cruces apartment complex is added to your other income and taxed at the same brackets as wages, after a deduction under NMSA 7-2-34.
Compared with its neighbors, New Mexico sits in the middle. Its top rate of 5.9% is lower than many coastal states, but it applies to almost all of a large gain, because the top bracket starts at $315,000 of taxable income on a joint return. The Taxation and Revenue Department starts the state calculation from your federal adjusted gross income, so the gain you report to the IRS flows straight onto the New Mexico return.
New Mexico income tax brackets for 2025 and 2026
New Mexico has six brackets, set by House Bill 252 of the 2024 session (Laws 2024, chapter 67), which rewrote the rate table for tax years beginning on or after January 1, 2025. The same table applies to 2026.
- Heads of household and surviving spouses use the joint column.
- Married people filing separately reach the 5.9% bracket at $157,500.
- Short-term and long-term gains are taxed at the same New Mexico rates. Holding period matters for the federal return and for the federal definition of net capital gain that the state deduction uses.
| Rate | Single filers (taxable income) | Married filing jointly |
|---|---|---|
| 1.5% | Up to $5,500 | Up to $8,000 |
| 3.2% | $5,500 to $16,500 | $8,000 to $25,000 |
| 4.3% | $16,500 to $33,500 | $25,000 to $50,000 |
| 4.7% | $33,500 to $66,500 | $50,000 to $100,000 |
| 4.9% | $66,500 to $210,000 | $100,000 to $315,000 |
| 5.9% | Over $210,000 | Over $315,000 |
The New Mexico capital gains deduction after 2025
For 2025 and later years, you may deduct the greater of two amounts: your net capital gain up to $2,500, or 40% of up to $1,000,000 of net capital gain from the sale of a business that is allocated or apportioned to New Mexico. The 2024 tax package made this change. Before 2025, every taxpayer could deduct the greater of $1,000 or 40% of all net capital gain.
For a typical seller of a rental building, the practical result is a much smaller break than before. Under the old rule, 40% of a $1,000,000 gain came off taxable income. Under the current rule, unless the sale qualifies as the sale of a business, the deduction is $2,500. Even at its largest, the business-sale deduction is $400,000 (40% of the first $1,000,000).
The statute does not define "sale of a business," and we found no Taxation and Revenue Department guidance on whether selling an apartment building, held in an LLC or run as an active rental business, counts. Ask your CPA to look at how your property is owned and operated before you assume the larger deduction. The worked example below uses the $2,500 figure and shows the other outcome alongside it.
How New Mexico 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 lands on top of your other taxable income. Under Revenue Procedure 2025-32, the 20% rate starts above $613,700 of taxable income on a 2026 joint return and above $545,500 for a single filer.
Depreciation you claimed on the building comes back as unrecaptured Section 1250 gain, taxed federally at no more than 25%. The 3.8% net investment income tax applies on top once modified adjusted gross income passes $250,000 on a joint return or $200,000 for a single filer, unless the rental is part of a qualifying real estate professional’s trade or business.
New Mexico has no investment income surtax and no separate recapture rate. Every dollar of gain that remains after the deduction is taxed at the state brackets, and on a building sale that mostly means 5.9%. New Mexico tax is deductible on the federal return only within the capped state and local tax itemized deduction, so on a large sale most of it gives no federal benefit.
Depreciation recapture in New Mexico
New Mexico taxes depreciation recapture at its regular income tax rates, the same up to 5.9% as the rest of the gain. The split between recapture and capital gain changes your federal bill, but it does not change the New Mexico rate.
The split can matter for the deduction, though. The 7-2-34 deduction is measured by net capital gain as defined in Section 1222(11) of the Internal Revenue Code. On a building depreciated straight-line, the whole gain is usually capital gain for that purpose. Equipment and other short-life assets from a cost segregation study are a different story: gain on those is ordinary income federally and falls outside net capital gain. If you did a cost segregation study, have your CPA split the gain by asset class before you estimate the state tax.
Nonresident sellers and LLC owners
Nonresidents owe New Mexico tax on gain from New Mexico property. The Taxation and Revenue Department requires a nonresident to file when they have a federal filing requirement and income from any New Mexico source, and gain on a building in the state is New Mexico-source income.
Many apartment buildings are owned through an LLC taxed as a partnership. In that case the gain passes through to the members. Under the department’s Bulletin B-200.25, a pass-through entity withholds tax each year on the allocable share of net income of its nonresident owners and reports it on Form RPD-41367, with owners receiving Form RPD-41359. The entity does not have to withhold for owners who are New Mexico residents, and an owner can agree in writing on Form RPD-41353 to pay the tax directly.
If your LLC has out-of-state members, plan for that withholding in the year of the sale so the cash is held back before distributions go out.
Worked example: selling a $2M apartment building in New Mexico
A married couple filing jointly sells a 24-unit building in Albuquerque for $2,000,000 and pays $110,000 in selling costs, so the amount realized is $1,890,000. They paid $1,200,000 for it and have taken $400,000 of depreciation, so their adjusted basis is $800,000. The gain is $1,090,000: $400,000 of unrecaptured Section 1250 gain and $690,000 of long-term capital gain. Their other taxable income is $450,000 on both returns, and they still owe $950,000 on the mortgage.
Federal tax: their other income already sits in the 32% bracket, so the $400,000 of Section 1250 gain is taxed at the 25% cap, or $100,000. The $690,000 capital gain falls entirely above the $613,700 line and is taxed at 20%, or $138,000. The 3.8% net investment income tax on $1,090,000 adds $41,420. Federal total: $279,420.
New Mexico tax: with income already above $315,000, the gain after the $2,500 deduction, $1,087,500, is taxed at 5.9%, or $64,162.50. Combined tax is about $343,583, roughly 31.5% of the gain. After repaying the loan, the couple has $940,000 in cash before tax and about $596,417 after.
If the couple’s CPA concluded the sale qualified for the business-sale deduction, they would deduct $400,000 instead, and the New Mexico tax would be $40,710, about $23,453 less.
| Item | Amount |
|---|---|
| Sale price | $2,000,000 |
| Selling costs | $110,000 |
| Adjusted basis | $800,000 |
| Total gain | $1,090,000 |
| Federal Section 1250 tax (25%) | $100,000 |
| Federal capital gains tax (20%) | $138,000 |
| Net investment income tax (3.8%) | $41,420 |
| New Mexico tax (5.9% after $2,500 deduction) | $64,163 |
| Total tax | $343,583 |
How a 1031 exchange changes the New Mexico tax
A properly structured 1031 exchange defers the New Mexico tax along with the federal tax. Because the state return starts from federal adjusted gross income, gain the IRS lets you defer never reaches the New Mexico calculation. In the example, buying a replacement worth at least $1,890,000 and reinvesting all $940,000 of net cash would push the whole $343,583 into the future.
New Mexico does not have a clawback rule. If you exchange a Santa Fe building for one in Texas or Colorado, there is no New Mexico tracking form like Oregon’s, and no annual filing to keep the deferred gain on the state’s books. Cash you keep in a partial exchange is boot and is taxed now, at the same 5.9% for most sellers in this range. Our page on the 1031 exchange in New Mexico covers paths in and out of the state and a boot example.
The 1031 exchange calculator and the capital gains tax calculator run the federal side with your own numbers.
Other ways New Mexico sellers manage the tax
With a 5.9% top rate and only a small deduction, timing and structure do most of the work.
- An installment sale spreads gain over several years. It helps most if your other income would keep part of the gain below the $315,000 joint top bracket each year.
- Holding the building until death gives heirs a stepped-up basis for both federal and New Mexico purposes.
- Keep records of roofs, HVAC systems and other capital improvements. They raise basis and cut the gain at both levels.
- If you own through an entity with an operating business, ask your CPA whether the 40% business-sale deduction can apply.
Selling a New Mexico apartment building
Skyline buys apartment buildings with five or more units in New Mexico, including Albuquerque, Rio Rancho, Las Cruces and Santa Fe. 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 gives you time to line up the replacement and work with your intermediary on the contract assignment.
For the yearly carrying cost a buyer will look at, see the property tax rate in New Mexico. For the late fee cap, deposit rules and tenant notices that transfer with the building, see our guide to New Mexico 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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