Another State Bans Capital Gains Taxes: Will More Follow in 2026?

Much of the attention surrounding the recent November 4 elections centered on key races in states including New York, New Jersey, and Virginia.

However, Texas voters made a move of their own, approving Proposition 2. That amendment to their state constitution will solidify a ban on Texas capital gains taxes, including those on unrealized gains.

But wait: isn’t Texas already a state with no income tax? Why would voters need to prevent a tax on capital gains that has never been imposed? As you might expect, answers to these questions involve economic and political considerations.

From just $107.88 $24.99 for Kiplinger Personal Finance

Become a smarter, better informed investor. Subscribe from just $107.88 $24.99, plus get up to 4 Special Issues

CLICK FOR FREE ISSUE

Sign up for Kiplinger’s Free Newsletters

Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.

Profit and prosper with the best of expert advice - straight to your e-mail.

Sign up

So, here’s more of what you need to know, including what the Texas move could mean for other states.

Texas capital gains tax ban

The passage of Proposition 2 aligns with the Lone Star State's longstanding policy of not imposing a personal income tax (including capital gains taxes). However, once certified, the amendment will reinforce that by constitutionally prohibiting future taxes on capital gains, whether realized or unrealized.

Key Points:

• At first glance, the idea of banning capital gains taxes in Texas may seem unnecessary. (The state has never implemented taxes on capital gains, primarily because it does not have a personal income tax.)
• However, given the changing policies in other states without income taxes, along with proposals for a "wealth tax" discussed during the Biden administration, there are some floating concerns about potential future taxation of unrealized capital gains.
• Since no U.S. state or the federal government has yet introduced an unrealized gains tax, some view the actions being taken in Texas as symbolic and preemptive.

According to reports of unofficial numbers, approximately 65% (just under 2 million Texans) voted in favor of the ban, while 35% voted “no.”

Future plans to tax unrealized gains?

An unrealized gain occurs when the value of an asset you own increases, but you haven't sold the asset yet. So, the gains are what some refer to as “paper gains” since they haven’t been realized tangibly.

• Generally, only realized gains are taxed in the U.S. Some argue that this allows the already ultra-wealthy to accumulate more wealth while avoiding paying their “fair share” of taxes.
• (For instance, billionaires can typically avoid income taxes by living off loans secured by appreciated assets rather than selling those assets, which would trigger capital gains taxes.)

The Biden administration had proposed a 25% tax on unrealized gains for ultra-wealthy individuals holding $100 million or more in assets. Biden also floated taxing unrealized gains at death for gains exceeding $5 million for single filers and $10 million per married couple.

At the time, those ideas ignited political and policy debate about everything from practicality and fairness to economic impact. However, the most important thing to know now is that under current U.S. tax law, investors are generally taxed only on realized gains.

Still, the idea (or fear of the concept) has lingered in some state tax policy debates.

Washington capital gains tax controversy

Interestingly, Washington state also has no personal income tax, but it has had a controversial capital gains tax for the last few years.

• Washington’s capital gains tax initially imposed a 7% tax on long-term capital gains above an annual exemption ($270,000 for 2024, with inflation adjustments).
• The tax applies to profits from the sale of stocks, bonds, and other non-retirement assets, while exempting real estate, retirement accounts, and many small business sales.
• Now, under recent state legislation, a new 2.9% surcharge applies to net long-term capital gains exceeding $1 million above the exemption, effective retroactively from January 1, 2025.

Washington’s approach contrasts with the Texas constitutional ban, highlighting the different strategies states are adopting to fund public services and manage tax policy.

For example, during the 2024 election, Initiative 2109, a measure to repeal the capital gains tax, appeared on the Washington state ballot. But as Kiplinger reported, voters there rejected the repeal effort, with over 63% voting “no.”

The state uses the capital gains tax revenue to fund education (K-12 and early learning) and child care programs. According to Washington’s Department of Revenue, the levy has raised over $1 billion for education and school construction in its first three years

Missouri capital gains tax eliminated

On the other side, Missouri recently became the first state with an individual income tax to ban capital gains taxes.

As Kiplinger reported, on July 10, 2025, Missouri Gov. Mike Kehoe signed House Bill 594 into law. That legislation eliminates the state tax on capital gains for individuals, effective January 1, 2025.

In a statement regarding the bill’s passage, the governor described the tax changes as pro-growth — “keeping more money in the hands of Missouri families and less in government coffers.”

The measure is projected to cost Missouri around $350 million a year.

And speaking of revenue, while Texas voters favored locking in tax protections, some critics argued that bans like Proposition 2 could ultimately limit revenue streams essential for public services, including schools, infrastructure, and health care. There were also concerns that the measure could limit legislative flexibility in the future.

Supporters contend that low and predictable taxes foster economic growth, attract businesses, and encourage investment.

Worth noting: The Washington state capital gains tax sparked warnings of “wealth flight.” Some critics worried that high-income individuals and entrepreneurs would leave in favor of states with lower or no capital gains taxes.

However, data so far seems to tell a different story.

• In its first year, the Washington cap gains tax reportedly generated approximately $840 million — well above projections.
• A subsequent drop the next year, to about $418 million, was attributed to market volatility, rather than a mass exodus of wealthy residents, according to the state’s Department of Revenue.

Federal capital gains tax rates

For now, the fact is that at the federal level, the capital gains tax framework hasn’t changed since President Donald Trump’s second term began. His administration has essentially maintained lower rates from previous administrations without pursuing unrealized gains taxes.

• For 2025 (returns you’ll file early next year) and 2026 (returns typically filed in early 2027), the long-term capital gains tax rates remain at 0%, 15%, and 20%, but the income thresholds have shifted.
• Note: Remember that short-term capital gains (assets held for one year or less) are taxed at ordinary income tax rates, different from those for long-term capital gains.

For taxpayers and investors, the Texas amendment may reinforce the state’s reputation as a low-tax state. Although even low-tax states have their pros and cons.

For other states, moves like those in Texas and Missouri (or even Washington) could serve as reference points as they decide whether to consider new taxes or strengthen protections against them. Stay tuned.

Read More

• IRS Updates Capital Gains Tax Thresholds for 2026
• Texas Property Tax Relief: What to Know Now
• States With Low and No Capital Gains Tax in 2025