Investors must pay capital gains taxes on the income they make as a profit from selling investments or assets. The federal government taxes long-term capital gains at the rates of 0%, 15% and 20%, depending on filing status and income. And short-term capital gains are taxed as ordinary income. Some states will also tax capital gains. A financial advisor could help you figure out your tax liability and create a tax plan to maximize your investments.
A financial advisor may be able to help. Match with an advisor serving your area today.
Capital gains vary depending on how long an investor had owned the asset before selling it. Long-term capital gains come from assets held for over a year. Short-term capital gains come from assets held for under a year.
Based on filing status and taxable income, long-term capital gains for tax year 2023 and 2024 will be taxed at 0%, 15% and 20%. Short-term gains are taxed as ordinary income based on your personal income tax bracket. After federal capital gains taxes are reported through IRS Form 1040, state taxes may also be applicable.
The following states do not tax capital gains:
This is because many of these states do not have an income tax. New Hampshire specifically taxes investment income (including interest and dividends from investments) only, but not wages.
A majority of U.S. states have an additional capital gains tax rate between 2.9% and 13.3%. The rates listed below are for 2023, which are taxes you’ll file in 2024.
The states with the highest capital gains tax are as follows:
California
California taxes capital gains as ordinary income. The highest rate reaches 13.3%
Hawaii
Hawaii taxes capital gains at a lower rate than ordinary income. The highest rate reaches 7.25%.
Iowa
Taxes capital gains as income and the rate reaches 6%.
Maine
Taxes capital gains as income. The rate reaches 7.15% at maximum.
Minnesota
Taxes capital gains as income and the rate reaches a maximum of 9.85%.
New Jersey
New Jersey taxes capital gains as income and the rate reaches 10.75%.
New York
New York taxes capital gains as income and the rate reaches 8.82%.
Oregon
Oregon taxes capital gains as income and the rate reaches 9.9%.
Vermont
Vermont taxes short-term capital gains as income, as well as long-term capital gains that a taxpayer holds for up to three years. They are allowed to deduct up to 40% of capital gains (at a maximum of $350,000 and not exceeding 40% of federal taxable income) on long-term assets held over three years. The capital gains tax rate reaches 8.75%.
Wisconsin
Wisconsin taxes capital gains as income. Long-term capital gains can apply a deduction of 30% (or 60% for capital gains from the sale of farm assets). The capital gains tax rate reaches 7.65%.
As for the other states, capital gains tax rates are as follows:
Alabama
Taxes capital gains as income and the rate reaches 5%
Arizona
Taxes capital gains as income and the rate reaches 2.5%
Arkansas
Taxes capital gains as income and the rate reaches around 5.50%.
Colorado
Colorado taxes capital gains as income and the rate reaches 4.55%.
Connecticut
Connecticut’s capital gains tax is 6.99%.
Delaware
Taxes capital gains as income and the rate reaches 6.60%.
Georgia
Taxes capital gains as income and the rate reaches 5.75%.
Idaho
Idaho taxes capital gains as income. The rate reaches 5.80%.
Illinois
Taxes capital gains as income and the rate is a flat rate of 4.95%.
Indiana
Taxes capital gains as income and the rate is a flat rate of 3.15%.
Kansas
Kansas taxes capital gains as income. The rate reaches 5.70% at maximum.
Kentucky
Taxes capital gains as income. The rate is a flat rate of 4.5%.
Louisiana
Taxes capital gains as income. The rate reaches 4.25%.
Maryland
Taxes capital gains as income and the rate reaches 5.75%.
Massachusetts
Taxes capital gains as income. Long-term capital gains are usually taxed at a flat rate of about 9% but there are some types of capital gains that the state taxes at 12%.
Michigan
Taxed as income and at a flat rate of 4.25%.
Mississippi
Taxed as income and reaches 5%.
Missouri
Taxed as income and the rate reaches 4.95%.
Montana
Taxed as income and the highest income tax rate is 6.90%, but with a 2% capital gains credit, this rate is technically 4.9%.
Nebraska
Taxed as income and the rate reaches 6.64%.
New Mexico
The state taxes capital gains as income (allowing a deduction of 40% of capital gains income or $1,000, whichever is higher) and the rate reaches 5.9%.
North Carolina
Taxed as income and at a flat rate of 4.75%.
North Dakota
Taxed as income (with a deduction allowed of 40% of capital gains income) and the rate reaches 2.90%.
Ohio
Taxed as income and the rate reaches 4.80%.
Oklahoma
Taxed as capital gains and the rate reaches 4.75%. There is a 100% capital gains deduction available for income from particular kinds of investments.
Pennsylvania
Taxed as capital gains income at a flat rate of 3.07%.
Rhode Island
Taxed as capital gains income and reaching 5.99%.
South Carolina
South Carolina taxes capital gains as income (with a 44% deduction available on long-term gains) and the rate reaches 6.4%.
Utah
Taxes capital gains as income at a flat rate of 4.95%.
Virginia
Virginia taxes capital gains as income with the rate reaching 5.75%.
Washington
Washington State taxes capital gains at a rate of 7%. However, real estate, retirement savings, livestock and timber are exempt from this tax.
West Virginia
The state taxes capital gains as income. The rate reaches 6.5%.
Taxes can be difficult if you’re not an expert and capital gains taxes can be tricky when investing, especially when you have to figure out both federal and state taxes. Be sure to understand whether your state taxes capital gains – and to what extent – before filing your tax return.
Photo credit: ©iStock.com/Doucefleur, ©iStock.com/deepblue4you, ©iStock.com/undrey
Nadia Ahmad, CEPF®Nadia Ahmad is a Certified Educator in Personal Finance (CEPF®) and a member of the Society for Advancing Business Editing and Writing (SABEW). Her interest in taxes and grammar makes writing about personal finance a perfect fit! Nadia has spent ten years working as a seasonal income tax assistant, researching federal, state and local tax code and assisting in preparing tax returns. Nadia has a degree in English and American Literature from New York University and has served as an instructor/facilitator for a variety of writing workshops in the NYC area.
Read More About Taxes
More from SmartAsset
SmartAsset Advisors, LLC ("SmartAsset"), a wholly owned subsidiary of Financial Insight Technology, is registered with the U.S. Securities and Exchange Commission as an investment adviser. SmartAsset's services are limited to referring users to third party advisers registered or chartered as fiduciaries ("Adviser(s)") with a regulatory body in the United States that have elected to participate in our matching platform based on information gathered from users through our online questionnaire. SmartAsset receives compensation from Advisers for our services. SmartAsset does not review the ongoing performance of any Adviser, participate in the management of any user's account by an Adviser or provide advice regarding specific investments.
We do not manage client funds or hold custody of assets, we help users connect with relevant financial advisors.
This is not an offer to buy or sell any security or interest. All investing involves risk, including loss of principal. Working with an adviser may come with potential downsides such as payment of fees (which will reduce returns). There are no guarantees that working with an adviser will yield positive returns. The existence of a fiduciary duty does not prevent the rise of potential conflicts of interest.
