Does Pennsylvania have a capital gains tax?
Pennsylvania capital gains tax on real estate is the state personal income tax at 3.07%, applied to the net gain from the sale. The Department of Revenue says it plainly: Pennsylvania makes no provision for capital gains and has no separate rules for long-term and short-term gains. A building you held for 30 years and one you flipped in eight months are taxed at the same rate.
The 3.07% rate has been in place since 2004. It is flat, so there are no brackets to climb, and a $1 million gain costs about $30,700 in Pennsylvania tax whatever your other income is.
How Pennsylvania’s income classes change the math
Pennsylvania splits income into classes, and net gains from the sale of property is its own class. That has two practical effects for a seller.
- A loss in one class cannot offset income in another. A loss on selling stock can offset a gain on your building, because both are in the gains class, but a loss from your rental operations cannot.
- Losses do not carry over. A net loss in the gains class this year is gone; it cannot reduce next year’s gain.
- Gain on a principal residence you owned and lived in for two of the last five years is exempt, but not the part used as a rental, such as the other units of a fourplex you live in.
- Cash-basis taxpayers can use the installment method for real property, reporting gain as payments arrive.
How Pennsylvania and federal capital gains tax stack
Your Pennsylvania tax is figured separately and added to your federal bill. Federal long-term gains are taxed at 0%, 15% or 20%, and Revenue Procedure 2025-32 puts the 2026 start of the 20% rate at $613,700 of taxable income for a joint return and $545,500 for a single filer. Gain equal to the depreciation you claimed is unrecaptured Section 1250 gain, taxed federally at up to 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 real estate professional’s trade or business. Pennsylvania has no surtax of its own.
On a typical apartment sale, Pennsylvania adds about three percentage points to a federal rate that is already above 20%. The state piece is rarely the biggest number. Transfer tax and local taxes can matter as much.
Nonresident sellers and entities
Pennsylvania does not require withholding at closing when a nonresident individual sells Pennsylvania real estate; the Department of Revenue’s nonresident withholding rules cover non-employee pay and business lease payments, not property sales. The gain is still Pennsylvania-source income, so a nonresident owner files a Pennsylvania return and pays the 3.07% on it.
Many buildings are owned through an LLC taxed as a partnership. The partnership itself pays no Pennsylvania income tax; it passes the gain through to the members. It does have to make withholding payments on each nonresident owner’s expected share of Pennsylvania-source income, using REV-413P/S, and nonresident owners can be reported on a PA-40 NRC consolidated return. Plan that cash before you distribute sale proceeds to out-of-state members.
Depreciation recapture in Pennsylvania
Pennsylvania has no recapture rate. Gain equal to depreciation you claimed is taxed at 3.07%, like the rest of the gain, so the split between Section 1250 gain and capital gain changes your federal bill only.
Your Pennsylvania basis may not match your federal basis. Pennsylvania personal income tax does not follow federal bonus depreciation, and the department reduces basis by the greater of the depreciation you deducted or the straight-line amount allowable. If you used a cost segregation study and took bonus depreciation on the federal return, your Pennsylvania depreciation was slower, your Pennsylvania basis is higher, and your Pennsylvania gain will be smaller than the federal figure. Ask your CPA for the state depreciation schedule before you price the tax.
Local taxes on a Pennsylvania sale
Local earned income taxes in Pennsylvania generally do not reach the gain. Under the earned income and net profits tax regulations used by county tax collection bureaus, such as Lancaster County’s, the net gain from the sale of property is generally not taxable, and rent is exempt if you are a passive owner. If you actively manage the building, the rental income itself can count as net profits.
Philadelphia adds more. The city’s School Income Tax, 3.74% for 2025, applies to residents’ unearned income, and the city lists short-term capital gains and some rental income among the taxable items. Long-term gains are not on that list. The Business Income and Receipts Tax applies to anyone engaged in residential rental activity in the city, at 1.410 mills on gross receipts and 5.71% of net income for tax year 2025, and the first $100,000 of receipts is no longer exempt. Ask your CPA how BIRT treats the gain on your sale.
Realty transfer tax: the other sale cost
Pennsylvania charges realty transfer tax of 1% of the value on a deed, and local governments add their own share, collected by the county recorder of deeds. Buyer and seller are jointly liable, and the split is a contract term.
Philadelphia’s total rate has been 4.578% since July 1, 2025: 3.578% for the city plus the state’s 1%. On a $2,000,000 sale that is $91,560. The tax is a selling cost, so the seller’s share reduces the gain, but it is paid in cash at closing and is not deferred by a 1031 exchange.
Worked example: selling a $2M apartment building in Pennsylvania
A married couple filing jointly sells a 20-unit building in Philadelphia for $2,000,000. They split the 4.578% transfer tax with the buyer, so their share is $45,780, and they pay $80,000 in commissions and other costs. Total selling costs are $125,780, and the amount realized is $1,874,220. They bought the building for $1,000,000 and have claimed $400,000 of straight-line depreciation, so the adjusted basis is $600,000 and the gain is $1,274,220. Their other taxable income is $250,000, and the building carries a $900,000 mortgage.
Federal tax: the $400,000 of Section 1250 gain at the 25% maximum is $100,000. The remaining $874,220 of long-term gain stacks on top of $650,000 of income, already past the $613,700 line, so all of it is taxed at 20%, or $174,844. The 3.8% net investment income tax on the full gain is $48,420. Federal total: $323,264.
Pennsylvania tax: 3.07% of $1,274,220 is $39,119. Because the gain is long term, the city’s School Income Tax does not list it. Combined income tax is $362,383, about 28% of the gain. After repaying the loan, the couple nets $974,220 before tax and about $611,837 after.
| Item | Amount |
|---|---|
| Sale price | $2,000,000 |
| Seller’s half of 4.578% transfer tax | $45,780 |
| Other selling costs | $80,000 |
| Adjusted basis | $600,000 |
| Total gain | $1,274,220 |
| Federal Section 1250 tax (25%) | $100,000 |
| Federal capital gains tax (20%) | $174,844 |
| Net investment income tax (3.8%) | $48,420 |
| Pennsylvania income tax (3.07%) | $39,119 |
| Total income tax | $362,383 |
How a 1031 exchange changes the Pennsylvania tax
A 1031 exchange now defers Pennsylvania tax as well as federal tax. The Department of Revenue allows deferral of tax on like-kind exchange gains effective January 1, 2023, using the federal definition of like-kind property. Before that, Pennsylvania did not follow Section 1031 for personal income tax.
In the example, an exchange into a replacement worth at least $1,874,220, with all $974,220 of net cash reinvested, would defer the full $362,383 of income tax. It would not touch the transfer tax: the $45,780 is due at closing either way, and the replacement deed carries its own transfer tax if it is in Pennsylvania. Pennsylvania has no clawback rule, so you can exchange into another state without a yearly Pennsylvania filing. Our page on the 1031 exchange in Pennsylvania covers the details.
The 1031 exchange calculator and the capital gains tax calculator run the federal side for your own numbers.
Ways Pennsylvania sellers lower the bill
With a flat 3.07% rate, timing the sale across tax years does little for the Pennsylvania share. The tools that work are the ones that shrink the gain or push it into the future.
- Gather receipts for capital improvements. Every dollar added to basis cuts the gain for both the federal and the Pennsylvania return.
- Ask for the Pennsylvania depreciation schedule. If bonus depreciation was taken federally, the higher state basis lowers the state gain.
- Use the gains class. A loss on other property sold in the same year, including securities, offsets the building gain in Pennsylvania.
- Negotiate the transfer tax split. In Philadelphia each percentage point of a $2,000,000 price is $20,000 in cash at closing.
- Consider an installment sale or a 1031 exchange to defer tax, or holding the building so heirs receive a stepped-up basis.
Selling a Pennsylvania apartment building
Skyline buys apartment buildings with five or more units in Pennsylvania, from Philadelphia and its suburbs to Pittsburgh, Allentown, Harrisburg and Erie. We buy directly, close on your timeline, and can work inside 1031 deadlines. If you are exchanging, we can set a closing date that leaves time to find the replacement first.
For the carrying cost a buyer will underwrite, see our page on the property tax rate in Pennsylvania, and for notice, deposit and eviction rules that affect a sale with tenants in place, Pennsylvania 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
