Nine states currently have no capital gains tax at all
Capital gains tax is a tax on the profit you make when you sell an investment — a stock, rental property, or business — for more than you paid for it. Nine states do not tax these profits: Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, Wyoming, and New Hampshire. The rules vary slightly by state and by what you're selling, so the absence of a state capital gains tax does not automatically mean zero tax on your investment income.
These nine states use other revenue sources instead — sales tax, property tax, corporate tax, or some combination. New Hampshire, for example, has no sales tax but taxes investment income at 5 percent, though it calls this an "interest and dividends tax" rather than a capital gains tax. The distinction matters because it changes which investments are taxed and which are not.
If you live in a state with capital gains tax, you still owe federal capital gains tax on all your gains, regardless of where you live. State tax is separate and additional. Moving to a no-capital-gains-tax state for tax reasons alone is rarely practical unless you also have other reasons to relocate, because you will owe state tax in the state where you lived when you sold the investment.
Key Takeaways
- Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, Wyoming, and New Hampshire have no state capital gains tax on investment profits.
- New Hampshire taxes investment income but does not call it capital gains tax, so the name of the tax does not always match what it covers.
- Living in a no-capital-gains-tax state does not reduce your federal capital gains tax, which applies everywhere.
- You owe state capital gains tax in the state where you lived when you sold the investment, not where you live now, so moving after a sale does not erase the tax.
How capital gains tax works across state lines
When you sell an investment at a profit, you report the gain on your federal tax return and pay federal tax on it. Your state then taxes the same gain separately, using its own rate and rules — unless your state has no capital gains tax. The two taxes are independent; one does not reduce the other.
The state where you owe tax is the state where you lived when you sold the investment, not where you live now or where the investment was located. If you bought a rental property in Florida, moved to New York, and then sold the property while living in New York, you owe New York capital gains tax. This rule prevents people from avoiding state tax by moving after a sale.
Some states tax long-term capital gains (profits on investments held more than one year) at a lower rate than short-term gains (held one year or less). A few states tax only long-term gains. The nine states listed above tax neither, regardless of how long you held the investment.
States that recently added or changed capital gains tax
Several states have added capital gains taxes in recent years, and others have proposed them. Washington state passed a capital gains tax in 2021 and began collecting it in 2022, though it faced legal challenges. Illinois passed a capital gains tax in 2021 but voters rejected it in a 2024 referendum. Colorado, Minnesota, and other states have proposed capital gains taxes but have not yet passed them into law.
Tax law changes frequently, so a state that has no capital gains tax today may add one in the future. Conversely, a state with a capital gains tax could theoretically repeal it, though this is less common. If you are making a major financial decision based on state capital gains tax, check your state's current law or speak with a tax professional, because the rules may have changed since this article was written.
What counts as a capital gain in states with no capital gains tax
In states that do tax capital gains, the definition usually includes profits from selling stocks, bonds, real estate, and business interests. In the nine states with no capital gains tax, you do not owe state tax on these profits, but you may still owe other state taxes on the same income.
For example, if you sell a business and receive the proceeds as a lump sum, you owe no state capital gains tax in Alaska or Texas. However, if the business sale triggers a state corporate tax liability or if you receive ongoing payments that count as ordinary income, you may owe tax on those. The absence of capital gains tax does not mean the state taxes nothing; it means this specific category of income is untaxed.
Investment income that is not a capital gain — such as dividends or interest — may be taxed separately. New Hampshire taxes dividends and interest at 5 percent but has no capital gains tax. Tennessee taxes dividends and interest but not capital gains. Always check what your state taxes beyond capital gains.
How to report capital gains if you live in a no-capital-gains-tax state
You still report your capital gains on your federal tax return and pay federal tax, even if your state has no capital gains tax. The federal form is Schedule D (Form 1040), which lists each sale and calculates your total gain or loss for the year.
When you file your state tax return, you will not owe state capital gains tax if you live in one of the nine states listed above. However, you may still need to file a state return if you owe other taxes — sales tax, property tax, or income tax on wages and ordinary income. Check your state's rules on whether you must file even if you owe no state tax.
If you moved during the year or sold an investment while living in a different state, you may owe tax to that state even if you now live in a no-capital-gains-tax state. You would file a non-resident return in the state where you lived when you sold the investment. This is one of the most common mistakes people make when relocating.
States with partial or limited capital gains taxes
A few states tax capital gains but only on certain types of investments or only above a certain income threshold. For example, some states tax capital gains only if your total income exceeds a specific amount, or only on gains from selling real estate, or only on gains from selling business interests.
These partial taxes are different from the nine states with no capital gains tax at all. If you live in a state with a partial capital gains tax, you may owe tax on some of your gains but not others, depending on what you sold and how much you earned. The rules are complex and vary widely, so it is worth checking your state's specific law if you are close to an income threshold or if you sold an unusual type of investment.
Federal capital gains tax rates and how they differ from state tax
The federal government taxes long-term capital gains at 0 percent, 15 percent, or 20 percent, depending on your total income for the year. Short-term capital gains are taxed as ordinary income, which means they use the same rates as wages and salaries — up to 37 percent at the highest bracket.
State capital gains taxes, where they exist, are separate from federal tax and use their own rates. Some states tax all capital gains at a flat rate; others use graduated rates like the federal system. A state with no capital gains tax saves you the state portion but does not change your federal tax bill.
The total tax you pay on an investment profit is federal tax plus state tax (if your state has one). If you live in California, which has a 13.3 percent capital gains tax, and you are in the 20 percent federal bracket, you could pay 33.3 percent total on a long-term gain. In Texas, with no state capital gains tax, you would pay only the 20 percent federal rate.
Frequently Asked Questions
If I move to a no-capital-gains-tax state, do I avoid tax on investments I sold before moving?
No. You owe state capital gains tax in the state where you lived when you sold the investment, not where you live now. If you sold stock while living in New York and then moved to Florida, you still owe New York capital gains tax on that sale. Moving does not erase a tax you already owed.
Does New Hampshire really have no capital gains tax?
New Hampshire has no tax on capital gains from selling stocks, bonds, or real estate. However, it taxes dividends and interest income at 5 percent. So if you earn money from stock dividends, you owe New Hampshire tax; if you earn money from selling the stock itself, you do not. The distinction is important for investment planning.
Can I reduce my federal capital gains tax by living in a state with no capital gains tax?
No. Federal capital gains tax applies everywhere, regardless of which state you live in. The only tax you save by living in a no-capital-gains-tax state is the state portion. Your federal tax bill stays the same.
What if I own property in multiple states — which state's capital gains tax do I owe?
You owe capital gains tax in the state where you lived when you sold the property, not where the property is located. If you owned rental property in California but lived in Texas when you sold it, you owe no state capital gains tax (because Texas has none). The location of the property does not determine which state taxes the gain.
Are there any states that recently changed their capital gains tax status?
Washington state added a capital gains tax in 2022 after passing it in 2021. Illinois passed a capital gains tax in 2021, but voters rejected it in a 2024 referendum, so it did not take effect. Tax law changes, so check your state's current rules if you are making a major financial decision.