Two investors sell the same $150,000 in appreciated stock on the same day. Both are single filers earning $110,000 in salary. Both pay 15% to the federal government on their long-term gains: $22,500. Then state taxes arrive.
The investor in Austin, Texas pays $0.
The investor in San Francisco pays roughly $19,950.
Same gain, same federal rate, nearly twenty grand apart. Your state might be quietly taking a larger bite of your investment profits than you realize.
The quick version: Most states tax capital gains as ordinary income. Eight states charge nothing. One (Washington) has a new excise tax for high earners. Your state rate can add 0% to 13.3% on top of federal taxes.
States With No Capital Gains Tax
Eight states don't tax capital gains income:
- Alaska
- Florida
- Nevada
- New Hampshire
- South Dakota
- Tennessee
- Texas
- Wyoming
Most of these states have no income tax at all. New Hampshire is the exception: it historically taxed interest and dividends but fully repealed that tax effective January 1, 2025.
Washington State requires its own explanation. It has no income tax, but in 2022 it implemented a 7% excise tax on long-term capital gains exceeding a standard deduction ($278,000 per individual for 2025). Starting January 1, 2025, gains above $1 million face a higher 9.9% rate. Real estate gains, retirement account distributions, and livestock sales are exempt.
If you live in one of the true zero-tax states, federal taxes are your only concern. That simplicity has real value, especially when you're trying to model the cost of selling a business or a large stock position.
How Most States Tax Capital Gains
The majority of states use one simple rule: capital gains are taxed as ordinary income. Whatever rate applies to your paycheck applies to your investment profits too.
This means there's no state-level equivalent of the federal 0%/15%/20% preferential structure in most states. A long-term gain and a short-term gain face the same state rate. California doesn't care if you held that stock for 10 years or 10 days.
Here are the highest-tax states for investors in 2025:
| State | Top Marginal Rate on Capital Gains | Notes |
|---|
| California | 13.3% | Plus 1% surcharge on income over $1M |
| New York | 10.9% | NYC residents face additional local tax |
| Oregon | 9.9% | Taxed as ordinary income |
| Minnesota | 9.85% | Taxed as ordinary income |
| New Jersey | 10.75% | Taxed as ordinary income |
| Hawaii | 7.25% | Lower rate than ordinary income |
| Vermont | 8.75% | Short-term taxed as income; LT over 3 years gets 40% deduction |
And the lowest non-zero states:
| State | Top Rate | Notes |
|---|
| Arizona | 2.50% | Flat rate |
| North Dakota | 2.50% | 40% deduction on capital gains |
| Indiana | 3.00% | Flat rate |
| Pennsylvania | 3.07% | Flat rate |
| Iowa | 3.80% | New flat rate, recently reduced |
The Missouri Exception: 100% Exemption
Starting January 1, 2025, Missouri became the first state with an income tax to completely exempt individual capital gains. If you live in Missouri and sell appreciated assets, you pay zero state tax on the gains, regardless of the amount.
This is a significant change. Before this law, Missouri taxed capital gains at its ordinary income rate (up to 4.7%). A Missouri investor selling $200,000 in stock just avoided about $9,400 in state taxes.
Whether other states follow Missouri's lead is an open question. But for now, it's a unique advantage.
Worked Example: The Same Sale in Three States
Profile: Single filer, $110,000 salary, $150,000 long-term capital gain.
| Tax Component | Texas | Georgia | California |
|---|
| Federal capital gains tax (15%) | $22,500 | $22,500 | $22,500 |
| Federal NIIT (3.8% on excess over $200k) | $2,280 | $2,280 | $2,280 |
| State capital gains tax | $0 | $7,785 (5.19%) | $13,950 (~9.3% avg) |
| Total tax on $150,000 gain | $24,780 | $32,565 | $38,730 |
| Effective total rate | 16.5% | 21.7% | 25.8% |
The difference between Texas and California is $13,950. On a single investment sale.
Over a lifetime of investing, the gap compounds dramatically. If you reinvest those tax savings annually, the Texas investor ends up with hundreds of thousands more over a 30-year career. That's not an argument to move (quality of life matters too), but it is an argument to understand the math.
Georgia's flat rate of 5.19% (reduced for 2025) puts it squarely in the middle of the pack.
The Domicile Question: What Happens When You Move
Relocating before a big sale is a legitimate tax strategy. But states have rules designed to prevent you from "visiting" Florida for a month to dodge taxes.
California is notoriously aggressive. If you were a California resident when the gain accrued, the Franchise Tax Board may claim a portion of the tax even after you move. The FTB has been known to audit former residents years after they leave.
New York has a 548-day rule: spend more than 183 days in the state and maintain a "permanent place of abode," and you're a statutory resident, even if you moved your primary domicile elsewhere.
If you're planning to relocate before selling a business, large stock position, or investment property, establish domicile in the new state well in advance. Get a driver's license. Register to vote. Change your bank statements. File a declaration of domicile. Half measures invite audits.
States With Special Treatment for Long-Term Gains
A handful of states provide deductions or credits that reduce the effective rate on long-term capital gains:
- South Carolina: 44% deduction on long-term gains (top effective rate drops from 6.2% to about 3.5%)
- Wisconsin: 30% deduction on long-term gains (60% for farm assets)
- Vermont: 40% deduction on gains from assets held over 3 years (capped at $350,000)
- North Dakota: 40% deduction on capital gains income
- New Mexico: Deduction of 40% of gains or $1,000, whichever is higher
These deductions make a real difference. A $100,000 gain in South Carolina that would face $6,200 in state tax only costs about $3,472 after the deduction.
Your Next Move
- Know your state rate. Look up your state's treatment of capital gains before making any large sale. Don't assume it matches the federal rate.
- Compare total effective rates. Use our tax bracket calculator to estimate your combined federal, NIIT, and state burden.
- Consider timing around a move. If you're relocating from a high-tax state to a low-tax state, sell appreciated assets after establishing domicile in the new state.
- Check for state deductions. Several states offer special treatment for long-term gains, farm assets, or in-state businesses. Don't miss them.
- Factor state taxes into your investment strategy. If you're a California resident, the case for holding investments inside a Roth IRA (where gains are tax-free) is even stronger than average.
For more on how federal rates work alongside these state rates, see our comprehensive capital gains tax guide. And if you're weighing strategies to reduce your total bill, our guide to tax-loss harvesting covers a tactic that works at both the federal and state level. For a broader perspective on how federal tax brackets determine your rate, that guide covers the income tax side of the equation.
References
- Bankrate. (2025). Long-term capital gains tax rates for 2024, 2025 and 2026. Bankrate.com. https://www.bankrate.com/investing/long-term-capital-gains-tax/
- New Hampshire Department of Revenue Administration. (2025). Interest & Dividends Tax. Revenue.NH.gov. https://www.revenue.nh.gov/taxes-glance/interest-dividends-tax
- Washington Department of Revenue. (2025). Capital Gains Tax. dor.wa.gov. https://dor.wa.gov/taxes-rates/other-taxes/capital-gains-tax
- Tax Foundation. (2026). State Capital Gains Tax Rates. TaxFoundation.org.
- Georgia Department of Revenue. (2025). Important Tax Updates. Georgia.gov. https://dor.georgia.gov/taxes/important-tax-updates
- 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
