A married couple selling a business for $1.5 million in Washington State owes roughly $91,978 in state capital gains tax. The same couple, same sale, same day, in Missouri? Zero.
That's not a rounding difference. It's two states looking at the same transaction and reaching opposite conclusions about whether investment profits should be taxed. And both made their decisions in 2025.
The capital gains tax landscape is moving faster at the state level than at any point in the last two decades. Federal rates haven't changed, but the thresholds have shifted, the TCJA has been made permanent, and a patchwork of state laws now means your zip code is a major factor in what you owe.
Here's where things stand as of early 2026.
The 30-Second Version: Federal capital gains rates (0%, 15%, 20%) are unchanged but thresholds rose with inflation. The "One Big Beautiful Bill Act" made TCJA rates permanent and raised the estate tax exemption to $15 million. Missouri eliminated state capital gains tax entirely. Texas voters banned it constitutionally. Washington added a 2.9% surcharge on gains over $1 million. Your state matters more than ever.
Federal Rates: Same Structure, New Thresholds
The 2025 "One Big Beautiful Bill Act" (OBBBA) made the Tax Cuts and Jobs Act individual tax rates permanent. That means the 0%/15%/20% long-term capital gains structure is here to stay, but the income thresholds adjust annually for inflation.
2026 Long-Term Capital Gains Brackets
| Rate | Single | Married Filing Jointly |
|---|
| 0% | Up to $49,450 | Up to $98,900 |
| 15% | $49,451 - $545,500 | $98,901 - $613,700 |
| 20% | Over $545,500 | Over $613,700 |
Source: IRS / Tax Foundation.
Short-term capital gains (assets held one year or less) continue to be taxed as ordinary income at rates from 10% to 37%.
The 3.8% Net Investment Income Tax (NIIT) also remains, with thresholds frozen at $200,000 (single) and $250,000 (married). Those figures have never been adjusted for inflation since the tax was created in 2013, which means more taxpayers cross the line every year.
One notable OBBBA provision: the federal estate tax exemption is now permanently set at $15 million per individual ($30 million per couple) for 2026, indexed for inflation going forward. This matters for capital gains because inherited assets receive a stepped-up basis, wiping out a lifetime of unrealized gains.
The State-Level Divergence
The real action is in the states. Two simultaneous trends are pulling in opposite directions.
States Eliminating Capital Gains Tax
Missouri became the first state with an income tax to eliminate capital gains taxes for individuals. Governor Mike Kehoe signed House Bill 594 in July 2025, allowing residents to deduct 100% of federal capital gains from their state adjusted gross income, effective retroactively to January 1, 2025.
The projected cost: $350 million to $600 million per year in lost state revenue. Whether that's "lost" or "returned to taxpayers" depends on who you ask.
Texas voters approved Proposition 2 in November 2025, amending the state constitution to prohibit any future tax on realized or unrealized capital gains. Roughly 65% of voters (about 2 million Texans) voted yes.
Texas already had no income tax, so this was preemptive. The amendment blocks future legislatures from ever creating a capital gains tax without another constitutional amendment. Critics called it unnecessary. Supporters pointed to proposals for unrealized gains taxes at the federal level during the Biden administration and wanted a permanent firewall.
States Increasing Capital Gains Tax
Washington went the other direction. The state (which also has no income tax) has maintained a 7% excise tax on long-term capital gains exceeding a standard deduction (roughly $278,000 for 2025) since 2022.
In 2025, lawmakers added a 2.9% surcharge on gains exceeding $1 million above the deduction, bringing the top marginal state rate on large gains to 9.9%.
Revenue has been volatile. Collections dropped from $840.3 million in the tax's first year to $418.6 million the next, then rebounded to $560.6 million in 2024. The state attributes the fluctuation to market conditions, not an exodus of wealthy residents. Make of that what you will.
Worked Example: The State-Level Gap
A married couple with $250,000 salary sells a business or stock portfolio for a $1.5 million long-term gain.
Federal tax (same for both):
Approximately $357,000 (blended rate near 23.8% including NIIT).
Washington State tax:
- Deduction: $278,000
- Taxable gain: $1,222,000
- First $1M at 7%: $70,000
- Remaining $222,000 at 9.9%: $21,978
- Total state tax: $91,978
Missouri tax:
The couple saves nearly $92,000 by being domiciled in Missouri instead of Washington for this transaction. That's not a theoretical exercise. People move for these numbers.
The Unrealized Gains Debate
No U.S. state or the federal government currently taxes unrealized capital gains (the increase in an asset's value before you sell it).
But the concept keeps surfacing. The Biden administration proposed a 25% tax on unrealized gains for individuals with $100 million or more in assets. The idea died in Congress but sparked a wave of preemptive state action.
Texas and several other states have moved to constitutionally ban unrealized gains taxes specifically. The fear (whether or not you agree with it) is that a future federal proposal could trickle down to state policy.
For now, under current law, you owe capital gains tax only when you sell. Your 401(k) growing from $100,000 to $500,000 creates no tax event until withdrawal. A stock portfolio doubling in value is invisible to the IRS until you click "sell."
What Hasn't Changed (But People Think It Did)
A few common misconceptions about recent policy:
"The federal capital gains rate changed." No. The rates (0%, 15%, 20%) are the same. Only the income thresholds shifted for inflation.
"There's a new tax on tips." The OBBBA included a provision making tips and overtime pay exempt from federal income tax in certain circumstances. This has nothing to do with capital gains but keeps coming up in the same conversations.
"The step-up in basis is gone." It's not. In fact, the increased estate tax exemption ($15 million) makes the step-up more valuable than ever for most families.
What to Do: Your Next Move
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Check your state's capital gains tax rules. If you're planning a large sale (business, real estate, concentrated stock position), your state of domicile on the sale date determines the state tax. This can be a five- or six-figure difference.
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Review whether your income pushes you into the NIIT. The $200K/$250K thresholds haven't moved since 2013. If your income has grown, you may have crossed the line without realizing it.
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Plan large sales around income fluctuations. A year with lower ordinary income means more of your gain falls into the 0% or 15% bracket. Retirees and people between jobs have a natural window.
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Model your numbers using our compound interest calculator to see how deferring a sale (and its tax) affects your long-term wealth versus selling now.
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Stay informed. Capital gains policy is an active area of legislation at both the state and federal level. What's true today may shift next session.
For understanding the mechanics of how and when capital gains tax is actually paid, see our timing guide. To understand how different investment types are taxed in different accounts, start with our overview. And for how these rates interact with your broader financial picture, our guide on building an emergency fund covers the foundation you need before optimizing for taxes.
References
- Gunster Law Firm. (2025). Overview of Key Provisions of the One Big Beautiful Bill Act. Gunster.com.
- Internal Revenue Service. (2026). Topic No. 409, Capital Gains and Losses. IRS.gov. https://www.irs.gov/taxtopics/tc409
- Tax Foundation. (2026). 2026 Tax Brackets. TaxFoundation.org. https://taxfoundation.org/data/all/federal/2026-tax-brackets/
- Internal Revenue Service. (2025). Topic No. 559 Net Investment Income Tax. IRS.gov.
- Missouri Department of Revenue. (2025). Missouri; First State to Fully Exempt Capital Gains Tax. MO.gov. https://dor.mo.gov/news/newsitem/uuid/15044650-59dd-48f4-975a-01988d485255
- Taylor, K. R. (2025). Another State Bans Capital Gains Taxes: Will More Follow in 2026? Kiplinger. https://www.kiplinger.com/taxes/capital-gains-tax
- Washington Department of Revenue. (2025). New Tiered Rates for Washington's Capital Gains Tax. WA.gov.
- Perkins Coie. (2025). Washington Tax Changes 2025. PerkinsCoie.com.
- Washington Department of Revenue. (2025). Tax Year 2024 Initial Capital Gains Collections Exceed $560.6 Million. WA.gov.
- Bankrate. (2024). What Are Unrealized Gains or Losses. Bankrate.com. https://www.bankrate.com/investing/what-are-unrealized-gains-or-losses/
