Capital gains tax is a popular topic in part because capital gains can impact everything from financial status and investment decisions to wealth accumulation.
- When you sell an asset and make a profit, you have a capital gain, and depending on whether that gain is considered long-term or short-term and how effectively you offset it, you’ll generally have to pay taxes on it.
- High capital gains tax rates can reduce the amount of money you keep from your investment earnings.
Meanwhile, recent data show that millions of people are leaving high-tax states in favor of low-tax states to reduce their tax burdens and potentially have a lower cost of living overall. (More on that below.)
So, with the impacts of capital gains tax and tax-related migration in mind, here is what you need to know about some states with no capital gains tax and a few more with relatively low capital gains tax rates.
Sign up for Kiplinger’s Free E-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.
Which states have low capital gains tax?
Capital gains tax rates in states vary considerably, from lows of 0% to a potential high of just over 14% (i.e., California, where the state's regular income tax rates apply to capital gains).
However, a few states have capital gains tax rates that, while not zero percent, are still notable for being relatively low compared to those in other states.
- For example, North Dakota has a state capital gains tax rate of 2.9%. Capital gains in North Dakota are taxed as income. However, the state generally excludes (allows a deduction for) 40% of capital gains from taxable income.
- Pennsylvania's flat income tax rate is 3.07%, and the Keystone State has eight classes of income subject to tax. Pennsylvania doesn’t distinguish dividend income or long vs. short-term capital gains from a capital gains tax perspective. So, for Pennsylvania residents, capital gains are taxed as ordinary income.
- Indiana's capital gains tax rate is 3.0% because it is the state’s flat income tax rate. So, capital gains in the state are taxed at the same rate as ordinary income.
States with no capital gains tax
A little more than a handful of states have no capital gains tax. Those include Alaska, Florida, New Hampshire, Nevada, South Dakota, Tennessee, Texas, and Wyoming.
It’s no coincidence that these eight are also states without personal income tax. (Although Tennesee has a limited tax on certain dividends and capital gains and As of 2025, New Hampshire no longer taxes interest and dividend income.
However, other taxes in these states, like property and sales taxes, can run relatively high compared to other states. There has been some debate over whether states without an income tax are better places to live and whether having no capital gains taxes means missing out on a potentially lucrative source of state revenue.
It should also be noted that Washington is another state without a personal income tax. However, due to a recent Supreme Court decision, Washington has a somewhat controversial capital gains tax.
- That tax is 7% on the sale or exchange of individual long-term capital assets (e.g., stocks, bonds, business interests, etc.) that exceed $250,000.
- Only the portion of gains above the threshold is subject to the tax, and some assets are exempt from it.
- The tax is expected to affect a small number of Washington taxpayers overall (about 5,000 people).
- As Kiplinger reported, an advocacy group in Washington gathered enough signatures last year to have the tax appear on the November ballot. Voters decided not to repeal the state's capital gains tax.
Some people worry that Washington’s capital gains tax will drive people and businesses out of the state in favor of lower tax states.
And while it’s too early to tell what the impact will be, IRS migration data show that some high-tax states are losing billions of dollars in tax revenue as taxpayers flee to states with lower tax burdens.
For example, Tennessee, Texas, and Florida (all states with zero capital gains tax and no income tax) are among the most commonly moved to low-tax states.
According to IRS data, the Carolinas, where property taxes are below the national average, are also popular relocation spots for people who live in high-tax states like California and New York.
Related: Is It Better to Live in a State With No Income Tax?
Capital gains tax rates vs. income tax rates
When you are considering capital gains taxes, it can be helpful to remember that capital gains, at least at the federal level, are generally taxed at lower rates than most other types of income.
- Tax rates on personal income (e.g., your earnings from your job, self-employment, or interest and dividends) are generally taxed progressively.
- There are seven federal income tax rates, from 10% to 37% of your taxable income.
- Those marginal federal income tax rates are tied to federal tax brackets, and those are adjusted yearly for inflation.
On the other hand, federal capital gains tax rates for long-term capital gains (assets you hold for more than a year before you dispose of them) are taxed at favorable rates of 0%, 15%, or 20%, depending on your taxable income.
The capital gains tax brackets tied to those rates are also adjusted yearly for inflation.
Still, you can see that the federal capital gains tax rates are lower than the federal tax rates that apply to “ordinary” income. (Although, for federal income tax purposes, short-term capital gains, i.e., assets held a year or less when sold, are treated as ordinary income.)
However, several states don’t distinguish capital gains for income tax purposes. That is why you will sometimes see a state with a single tax rate or the same set of tax rates applicable to all taxable income.
Note: It’s also good to remember that capital gains taxes are only one tax burden you will deal with in a state. T
o get a fuller picture of your potential tax liability, you will also want to take a close look at which states have low sales taxes and property tax rates, whether a state has a “pink tax,” and yes, which states are the most expensive to die in due to estate and inheritance taxes.
Related Content
-
What to Expect in the Rest of This Year's Job Market — and Advice for Job SeekersEspecially in the most competitive fields, job seekers will need to strategize to stand out.
-
Five Tips For Estate Planning in 2025We're almost halfway through the year. Is your estate in order? If not, here are some tips to get it done in 2025.
-
Ten Cheapest Places To Live in FloridaProperty Tax Make your Florida vacation spot daily living — these counties have the lowest property tax bills in the state.
-
Missed Tax Day? Nearly One Million Taxpayers Still Can File and Claim Valuable Tax RefundsTax Refunds As many as one million taxpayers could be missing out on a significant tax refund.
-
Which Generation Pays the Most Tax in the US?Tax Burden Polls show that most people feel like taxes are unfair. But which age group bears the brunt of the tax burden in the United States?
-
Tax Day 2025: Don’t Miss These Freebies, Food Deals and DiscountsTax Day You can score some sweet deals on April 15 in some select restaurants like Burger King, Shake Shack, and more.
-
Tax Time: Does Your Kid Influencer Owe Taxes?State Tax Some minors are making big money on social media. Here’s how to know if they need to file taxes.
-
Trump Plans to Terminate IRS Direct File programTax Filing The IRS Direct File program was piloted last year in 12 states and has since expanded to 25. But will it last under the Trump administration?
-
How Caregivers for Adults Can Save on Taxes in 2025Tax Breaks Caring for your parent or spouse can be stressful, but the IRS offers tax breaks for qualifying taxpayers. Here they are.
-
U.S. Treasury to Eliminate Paper Checks: What It Means for Tax Refunds, Social Security
Treasury President Trump signed an executive order forcing the federal government to phase out paper check disbursements by the fall.
