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. Let’s break down how capital gains are taxed by state in 2021.
Capital Gains Tax Overview
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 2021 will be taxed at 0%, 15% and 20%. Short-term gains are taxed as ordinary income.
After federal capital gains taxes are reported through IRS Form 1040, state taxes may also be applicable.
States That Don’t Tax Capital Gains
The following states do not tax capital gains:
-
Alaska
-
Florida
-
New Hampshire
-
Nevada
-
South Dakota
-
Tennessee
-
Texas
-
Washington
-
Wyoming
This is because these nine states do not have an income tax. Tennessee and New Hampshire specifically tax investment income (including interest and dividends from investments) only, but not wages.
States That Tax Capital Gains
A majority of U.S. states have an additional capital gains tax rate between 2.9% and 13.3%. The rates listed below are either 2021 or 2020 rates, whichever are the latest available.
States With the Highest Capital Gains Tax Rates
The 10 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 11%
Iowa
Taxes capital gains as income and the rate reaches 8.53%.
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%.
Capital Gains Tax Rates in Other States
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 4.5%
Arkansas
Taxes capital gains as income and the rate reaches around 6%.
Colorado
Colorado taxes capital gains as income and the rate reaches 4.63%.
Connecticut
Connecticut’s capital gains tax is approximately 7%.
Delaware
Taxes capital gains as income and the rate reaches 6.6%.
Georgia
Taxes capital gains as income and the rate reaches 5.75%.
Idaho
Idaho axes capital gains as income. The rate reaches 6.93%.
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 3.23%.
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 5%.
Louisiana
Taxes capital gains as income. The rate reaches 6%.
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 5% 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 5.4%.
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 6.84%.
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 5.25%.
North Dakota
Taxed as income (with a deduction allowed of 40% of capital gains income) and the rate reaches 2.9%.
Ohio
Taxed as income and the rate reaches 4.8%.
Oklahoma
Taxed as capital gains and the rate reaches 5%. 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 7%.
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%.
West Virginia
The state taxes capital gains as income. The rate reaches 6.5%.
Bottom Line
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.
Tips for Navigating Tax Planning
-
Need help with finding a financial advisor? SmartAsset’s free tool matches you with up to three financial advisors in your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals. get started now.
-
You might be interested in signing up for a robo-advisor. Many robo-advisors offer tax-loss harvesting, which sells investments that are hurting your portfolio and helps offset what you earn from the gains. Robo-advisors aren’t necessarily right for everyone, but if you’re starting your investment journey or you don’t have complicated assets, you may want to give it a try. If you’re unsure, find one that offers you the chance to talk to a financial professional if you have questions about your specific needs. Not all robo-advisors offer this perk, but some do, usually for a fee.
Photo credit: ©iStock.com/Doucefleur, ©iStock.com/deepblue4you, ©iStock.com/undrey
The post 2021 Capital Gains Tax Rates by State appeared first on SmartAsset Blog.
