13 States With Low Capital Gains Tax

You may be able to reduce extra taxes by living in one of these states.

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Updated June 19, 2024
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When you start investing by purchasing assets like stocks, bonds, or real estate, the anticipation is that these will grow in value. If they do grow and you sell the asset for more than you paid for it, your profit is called capital gains.

Depending on the asset class and your income bracket, the government taxes these gains. However, you may be able to lower that tax bill if you live in one of these states.

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Capital gains

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When you sell a valuable asset, the profit you make from your investment is subject to tax at both the federal and state level. 

Capital gains tax is due for the year the profit is realized, meaning the year you received the profits. Many states align the capital gains tax to be the same as state income tax.

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Long-term vs. short-term capital gains

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Capital gains are broken into two different categories for tax purposes: short-term and long-term.

Short-term capital gains come from selling assets you've owned for a year or less. At the federal level, short-term gains usually get taxed at the regular income tax rates, which are 10%, 12%, 22%, 24%, 32%, 35%, or 37%.

Long-term capital gains come from selling assets you've owned for more than a year. Long-term gains are generally taxed at a lower rate than short-term gains. The tax rates are 0%, 15%, or 20%, depending on how you file your taxes and what income bracket you are in.

Here is a breakdown of the long-term capital gains brackets:

Filing status 0% 15% 20%
Single $0 to $47,025 $47,026 to $518,900 $518,901 or more
Married filing jointly $0 to $94,050 $94,051 to $583,750 $583,751 or more
Married filing separately $0 to $47,025 $47,026 to $291,850 $291,851 or more
Head of household $0 to $63,000 $63,001 to $551,350 $551,351 or more

States with no capital gains tax

JJ Gouin/Adobe capital gains form

Some states do away with capital gains tax altogether. Residents of these states will still need to pay federal capital gains taxes, but no additional state taxes. These states have no capital gains taxes:

  • Alaska
  • Florida
  • New Hampshire
  • Nevada
  • South Dakota
  • Tennessee
  • Texas
  • Wyoming

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Arizona

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While Arizona still has a capital gains tax, it's the lowest of the other states that require it. The state also doesn’t distinguish between short-term and long-term capital gains.

Arizona taxes all income, capital gains included at the same rate, which is 2.5%.

North Dakota

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In the eyes of the state of North Dakota, there is no difference whether your income is from capital gains or from your 9-to-5 job. All income is taxed the same. The current capital gains tax rate is 2.9%, significantly lower than the federal tax income rates.

Pennsylvania

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Pennsylvania is one of the states that uses a flat income tax rate.

Regardless of how your income was obtained, capital gains or otherwise, it’s all taxed the same at a rate of 3.07%.

Indiana

Alexey Stiop/Adobe skyline of indianapolis, indiana

When you live in Indiana, all your income is taxed at the same rate of 3.15%, which is still lower than the federal income tax rates.

There is no different tax rate for short-term capital gains or long-term capital gains.

Ohio

SeanPavonePhoto/Adobe columbus ohio usa skyline on river

Ohio treats all income the same. There is no difference between short-term and long-term capital gains, or any other income. They do have tiered taxes based on income and filing status.

Taxable Income
(Single Filers)
Taxable Income
(Married Filing Jointly)
Tax Rate on This Income
$0 to $26,050 $0 to $26,050 0%
$26,050 to $100,000 $26,050 to $100,000 2.75%
$100,000 or more $100,000 or more 3.5%

1031 Exchange

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A 1031 exchange gets its name from the IRS code that allows taxpayers to defer capital gains tax on real estate investments specifically. This rule allows you to roll the profits from the sale of a real estate investment into another “like-kind” property.

There are additional rules you must follow to take advantage of this process. For example, you must select your new property within 45 days of the sale, and you must close on that property within 180 days of the sale.

Even with its strict policies, this tax code allows investors to delay paying capital gains and grow their investments.

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Bottom line

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If you’re unsure what assets qualify for capital gains tax, consult a tax professional. They can help you navigate calculating what taxes you owe, as well as strategies to reduce future taxes as you continue to build wealth.

These might include holding onto assets for longer before selling or executing a 1031 exchange.

Remember, even if your state doesn’t charge a capital gains tax, all citizens must pay federal capital gains taxes.

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Author Details

Holly Humbert

Holly is a writer who recognizes that there isn't a one-size-fits-all approach to personal finance. She is passionate about entrepreneurship, women in business, and financial literacy. With more than four years of experience, her work has been featured on MarketWatch and The Ways to Wealth.