State Taxes on Capital Gains Explained

State taxes on capital gains can be complex, but understanding the basics can help you navigate the process.

Some states don't tax capital gains at all, like Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming.

However, most states do tax capital gains, and the rates vary widely. For example, Hawaii has the highest state tax rate on capital gains, at 8.25%.

You'll also need to consider any local taxes that might apply, which can further increase your tax liability.

State taxes on capital gains vary from state to state. Most states tax capital gains according to the same tax rates they use for regular income.

Some states don't tax income at all, but still tax other types of investment income, like dividends and interest. New Hampshire is an example of a state that doesn't tax income but does tax dividends and interest.

States with high income tax rates also tend to have high taxes on capital gains. California, New York, Oregon, Minnesota, New Jersey, and Vermont are examples of states with high income tax rates and high taxes on capital gains.

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Some states tax capital gains according to the same tax rates they use for regular income. This means that if you live in a state with no income tax, you won't have to worry about capital gains taxes at the state level.

New Hampshire is an example of a state that doesn't tax income, but does tax dividends and interest. On the other hand, states like California, New York, Oregon, Minnesota, New Jersey, and Vermont have high taxes on capital gains too.

Here's a breakdown of how some states tax capital gains:

A capital gain occurs when you sell an asset for more than you paid for it. This can happen with items like artwork, a vintage car, or even a boat.

You're also liable for capital gains taxes on anything you purchase and resell for a gain, which means even everyday possessions can trigger a tax bill.

Selling real estate or collectibles, such as art and antiques, comes with special capital gains rules that specify different and sometimes higher tax rates.

If you've sold cryptocurrency like bitcoin for a gain, you'll also be liable for capital gains taxes.

Capital gains taxes can be complex, but understanding how they work can help you navigate the process. Short-term capital gains are treated as ordinary income and taxed according to ordinary income tax brackets.

If you're a high earner, you may need to account for the net investment income tax (NIIT), which can add an extra 3.8% tax to your bill if your income exceeds a certain limit.

Long-term capital gains are taxed at a lower rate than short-term gains, but the specific rate depends on your income level. You may be taxed at 0%, 15%, or 20%.

If you're selling collectible assets like coins, precious metals, antiques, or fine art, you may be subject to a higher tax rate of up to 28% on long-term gains.

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Calculating your tax on capital gains can be a bit of a challenge. You'll need to consider both federal and state taxation to get an accurate picture of your tax liability.

Most states tax capital gains according to their regular income tax rates, so if you live in a state with no income tax, you won't have to worry about state taxes on capital gains.

However, some states, like California, New York, and Oregon, have high taxes on capital gains, so it's essential to take these into account when calculating your tax.

To calculate your tax, you'll need to sort your short-term and long-term gains and losses separately. This will help you net out any losses against your gains.

Here's a rough idea of how this works:

Keep in mind that these rates are subject to change, and you should always consult with a tax professional to get the most up-to-date information.

You can also deduct certain expenses, like transaction fees or taxes paid on reinvested dividends, to reduce your gain. And if you're selling a home, you may be eligible for a $250,000 exclusion on gain for an individual or $500,000 for a married couple filing jointly.

Some states don't tax capital gains at all, like New Hampshire, which only taxes dividends and interest.

If you live in a state with high income tax, like California, New York, or Oregon, you'll also pay high taxes on capital gains.

New Hampshire's unique tax policy means you won't have to worry about capital gains taxes in that state.

If you're in a state with high income tax, be prepared for high taxes on capital gains too.

You can use a good capital gains calculator to take both federal and state taxation into account, making it easier to navigate these taxes.

By understanding how your state taxes capital gains, you can make more informed investment decisions and potentially save money on taxes.

Some assets get special capital-gains tax treatment. This includes categories that are exempt from the norm.

If you have a high income, you may be subject to the net investment income tax, which imposes an additional 3.8% of taxation on your investment income, including your capital gains, if your modified adjusted gross income (MAGI) exceeds $250,000 if married and filing jointly or a surviving spouse, $200,000 if you're single or a head of household, and $125,000 if married, filing separately.

New Hampshire is an example of a state that doesn't tax income, but does tax dividends and interest.

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Exceptions can make a big difference in your tax situation. Some categories of assets get different capital-gains tax treatment than the norm.

If you sold a house the previous year, you may be able to exclude a portion of the gains from that sale on your taxes. To qualify, you must have owned your home and used it as your main residence for at least two years in the five-year period before you sell it.

You can exclude up to $250,000 in gains from a home sale if you're single, and up to $500,000 if you're married filing jointly. This can be a huge relief for those who have experienced a significant increase in their property value.

If you have a high income, you may be subject to another levy, the net investment income tax. This tax imposes an additional 3.8% of taxation on your investment income, including your capital gains, if your modified adjusted gross income (MAGI) exceeds certain maximums.

Those threshold amounts are $250,000 if married and filing jointly or a surviving spouse; $200,000 if you're single or a head of household, and $125,000 if married, filing separately.

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Some states don't tax capital gains at all, like New Hampshire, which only taxes dividends and interest.

New Hampshire is a great example of a state that has a unique tax system, where income isn't taxed, but other types of income are.

Most states, however, do tax capital gains according to their regular income tax rates.

If you live in a state with no income tax, like New Hampshire, you won't have to worry about state-level capital gains taxes.

California, New York, Oregon, Minnesota, New Jersey, and Vermont have high income tax rates, and they also have high taxes on capital gains.

Understanding tax rates and periods is crucial when it comes to capital gains.

Most brokerage firms have online management tools that provide real-time updates, making it easier for do-it-yourself investors to monitor holding periods. This is particularly important when making large transactions, as it can help you avoid paying higher tax rates on short-term gains.

Short-term capital gains tax is a tax applied to profits from selling an asset you've held for less than a year, and is paid at the same rate as ordinary income. Long-term capital gains tax, on the other hand, is typically much lower, with rates of 0 percent, 15 percent and 20 percent depending on your income.

Here's a breakdown of how much you would owe in long-term capital gains for tax year 2023, based on your tax-filing status and income:

A capital gain is the profit you make when you sell an asset for more than you paid for it. This can happen with things like artwork, a vintage car, or jewelry.

If you sell these types of items for a gain, you'll be liable for capital gains taxes. For instance, if you sell artwork for more than its original price, you'll have to pay taxes on the profit.

Real estate and collectibles, including art and antiques, have special capital gains rules. These rules can result in higher tax rates.

If you're a small business owner, you need to know about the 28 percent capital gains tax rate that applies to certain types of sales.

This rate applies to qualified small business stock that you've held for more than five years. You can exclude one-half of your gain from income, but the remaining gain may be taxed at up to 28 percent.

The IRS Publication 550 has more information on gains from qualified small business stock.

Collectibles, on the other hand, are subject to the 28 percent rate without any exclusions. These include proceeds from the sale of:

Understanding the difference between short-term and long-term capital gains tax is crucial for investors. Short-term capital gains tax is applied to profits from selling an asset you've held for less than a year, and it's taxed at the same rate as your ordinary income.

This means that if you sell an asset within a year, you'll pay a higher tax rate than if you held onto it for a longer period. For example, if you're in a 24% tax bracket, you'll pay 24% on your short-term gains.

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Short-term capital gains tax is applied to profits from selling assets like stocks, bonds, and real estate, among others. If you hold an asset for more than a year, you'll qualify for long-term capital gains tax.

Here's a breakdown of the differences between short-term and long-term capital gains tax:

Long-term capital gains tax is generally lower than short-term capital gains tax, with rates ranging from 0% to 20%. This is because long-term gains are considered more stable and less subject to market fluctuations.

It's worth noting that some assets, like collectibles and small business stock, are subject to a maximum 28% capital gains tax rate.

You'll typically need to pay capital gains taxes after selling an asset, and it may become fully due in the subsequent year's tax return.

In most cases, you'll need to pay federal taxes on your capital gains, but the good news is that you may not have to pay state taxes at all. In fact, seven states have no income tax, including Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, and Wyoming.

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If you live in one of these states, you won't have to worry about paying state taxes on your capital gains. However, if you live in a state that does levy an income tax, you may need to pay state taxes in addition to federal taxes.

Some states, like Washington, only tax capital gains income, while others, like New Hampshire, tax investment income but not earned income.

Here's a breakdown of the states that tax long-term capital gains less than ordinary income:

Keep in mind that some states provide breaks on capital gains taxes only on in-state investments or specific industries, so it's always a good idea to check the specific tax laws in your state.

Tax-loss harvesting is a strategy that allows investors to avoid paying capital gains taxes by using losses to offset gains. This means you can write off losses when you sell a depreciated asset, canceling out some or all of your capital gains on appreciated assets.

Some robo-advisor firms have automated this process by frequently selling investments at a loss and then immediately buying a very similar asset. This allows you to stay invested in the market while still taking advantage of tax deductions from your losses.

You can even wait and re-purchase the assets you sold at a loss if you want them back, but you'll still get a tax write-off if you time it right.

Some states, like California, New York, Oregon, Minnesota, New Jersey, and Vermont, have high income tax rates and also tax capital gains at a high rate.

New Hampshire is an exception, as it doesn't tax income but does tax dividends and interest.

The federal government collected about $170 billion in capital gains tax revenue in 2018.

Having a tax strategy is crucial for any good investment plan, and understanding your tax exposure is key to making smart financial decisions.

It's essential to evaluate both gains and losses throughout the year to reduce tax liability before year-end.

A good capital gains calculator can help you take both federal and state taxation into account, making it easier to plan for your taxes.

For your interest: Federal Tax Due

State taxes on capital gains can be complex, but understanding the basics can help you navigate the process. Capital gains taxes are due only after an investment is sold, which means you won't pay taxes on your investments until you sell them.

Capital gains taxes apply only to capital assets, which include stocks, bonds, digital assets like cryptocurrencies and NFTs, jewelry, coin collections, and real estate. This means that if you hold onto these types of assets without selling them, you won't have to pay capital gains taxes.

There are two types of capital gains: long-term and short-term. Long-term gains are levied on profits of investments held for more than a year, while short-term gains are taxed at an individual's regular income tax rate. This means that if you hold onto an investment for more than a year, you'll pay a lower tax rate on the gains.

Here's a breakdown of the key differences between long-term and short-term gains:

Understanding these key concepts can help you make informed decisions about your investments and plan for the taxes you'll owe when you sell them.