Nine states have no capital gains tax at all

Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, Wyoming, and New Hampshire do not tax capital gains. These nine states impose no tax on the profit you make when you sell stocks, bonds, real estate, or other investments at a higher price than you paid for them.

The absence of a capital gains tax does not mean these states have no income tax. Tennessee and New Hampshire tax investment income but not wages. Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming have no income tax at all — neither on wages nor on investment gains. The distinction matters if you live in one of these states and earn money from both work and investments.

If you live in a state with a capital gains tax and sell an investment, you owe tax to your state regardless of where the investment is located or where you made the sale. Moving to a no-capital-gains-tax state after you sell does not erase the tax you owe to your former state.

Key Takeaways

  • Nine states — Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, Wyoming, and New Hampshire — impose no tax on capital gains from the sale of investments.
  • Seven of these states (Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming) have no income tax on wages either, while Tennessee and New Hampshire tax wages but not investment gains.
  • The state where you live when you sell an investment determines which state can tax the gain, not the state where the investment is located.
  • States without capital gains tax often fund services through sales tax, property tax, or other revenue sources that may be higher than in states with income tax.

How capital gains tax works across states

When you sell an investment for more than you paid for it, the profit is called a capital gain. Most states tax this gain as income. The tax rate and rules vary by state, but the basic principle is the same: you owe tax on the difference between what you paid and what you received.

Your state of residence on the date you sell determines which state can tax your gain. If you are a resident of California on the day you sell stock, California can tax that gain even if you bought the stock years ago while living in Texas. Some states also tax gains on real property (land and buildings) located within their borders, even if you do not live there.

Capital gains tax is separate from federal income tax. The IRS taxes all capital gains the same way regardless of which state you live in. A state capital gains tax is an additional tax on top of what you owe to the federal government.

States that tax only investment income, not wages

Tennessee taxes interest and dividend income at a flat rate of 3.85 percent but does not tax wages or salary. This applies to money you earn from stocks, bonds, and other investments that pay interest or dividends. If you work for an employer and earn a paycheck, Tennessee does not tax that income.

New Hampshire taxes interest and dividend income at 5 percent but does not tax wages. Like Tennessee, New Hampshire targets investment income specifically. Capital gains from the sale of stocks or real estate are not taxed in New Hampshire, but the interest your savings account earns or the dividends your mutual fund pays are subject to tax.

Both states use this approach to attract residents and businesses while still collecting revenue from investment income. If you live in Tennessee or New Hampshire and your income comes entirely from wages, you owe no state income tax.

States with no income tax of any kind

Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming impose no state income tax on wages, investment gains, or any other form of income. These seven states collect revenue through sales tax, property tax, excise tax on specific goods, and other sources instead.

Sales tax rates in these states tend to be higher than in states with income tax. For example, Washington has a sales tax of 6.5 percent statewide, and local jurisdictions can add more. Texas has a statewide sales tax of 6.25 percent plus local additions. If you spend a large portion of your income on taxable goods, the higher sales tax may offset the savings from no income tax.

Property tax also varies widely. Texas and Florida have relatively low property tax rates, while Wyoming and South Dakota rates depend on the county. Before moving to a no-income-tax state, compare the total tax burden — sales tax, property tax, and any other state taxes — against your current state.

How residency affects which state taxes your gains

Your state of residency is determined by where you live and intend to make your home. Most states define a resident as someone who lives in the state for more than half the year or who has a permanent home there. If you split time between two states, the state where you spend more time or maintain your primary residence can claim you as a resident.

Some states have specific rules for people who move during the year. If you sell an investment in June and move to a no-capital-gains-tax state in July, your former state may still tax the gain because you were a resident when you sold. Check with your former state's tax authority about the exact date your residency ended.

If you own real estate in a state other than where you live, that state can tax the capital gain when you sell the property, even if you are not a resident. This is called tax on real property gains. A few states explore this rule; others do not. If you own investment property in multiple states, research each state's rules before selling.

Why states without capital gains tax still collect revenue

States without capital gains tax do not forgo all tax revenue. They replace income tax with other sources. Sales tax is the most common replacement. Washington, Nevada, and Texas all have sales tax rates above 6 percent, and local jurisdictions add more on top of the state rate.

Property tax is another major revenue source. Florida and Texas use property tax to fund schools and local services. Wyoming and South Dakota also rely on property tax. The effective tax rate — what you actually pay as a percentage of your income — can be similar to or higher than in states with income tax, depending on how much you spend and own.

Some states also tax specific goods or activities. Washington taxes capital gains on the sale of long-term capital assets above a certain threshold, though this is a newer tax and subject to legal challenge. Nevada taxes gambling winnings. These targeted taxes generate revenue without a broad income tax.

Moving to a no-capital-gains-tax state: timing and residency rules

If you plan to move to a state without capital gains tax and want to sell investments, the timing of your move matters. You must establish residency in the new state before you sell the investment. Residency is not automatic on the day you arrive; it depends on where you live and your intent to stay.

Most states consider you a resident once you have lived there for more than half the year or established a permanent home. Some states have a waiting period. If you move to Florida in January and sell stock in February, Florida may not yet consider you a resident, and your former state may still tax the gain.

To be safe, establish residency by obtaining a driver's license, registering to vote, leasing or buying a home, and opening a bank account in the new state. Keep records of these steps. If your former state challenges your residency claim, you will need proof that you moved with the intent to stay.

Frequently Asked Questions

If I sell stock while living in a state with capital gains tax, can I avoid the tax by moving before the sale?

No. Your state of residency on the date you sell determines which state taxes the gain. If you are a resident of New York when you sell, New York taxes the gain even if you move to Florida the next day. You must move and establish residency before you sell.

Does owning a vacation home in a no-capital-gains-tax state mean I can avoid capital gains tax when I sell it?

No. The state where the property is located can tax the gain when you sell it, regardless of where you live. If you own a vacation home in Florida but live in New York, both states may claim the right to tax the gain. Florida will tax it because the property is there; New York may tax it because you are a resident.

Are capital gains from selling a business treated differently than stock sales?

The rules are the same. A capital gain is a capital gain, whether it comes from selling stock, real estate, or a business. Your state of residency when you sell determines the tax. The amount of the gain does not change the rule.

If I inherit an investment, do I owe capital gains tax when I inherit it?

No. Inherited investments receive a "step-up in basis," meaning the value resets to the market price on the date of death. You owe capital gains tax only on gains that occur after you inherit, not on gains that happened before. This rule applies in all states, including those with capital gains tax.

Can I claim residency in two states at the same time to avoid capital gains tax?

No. You can have only one state of residency for tax purposes. If you split time between two states, the state where you spend more time or maintain your primary home is your state of residency. If both states claim you, you may end up owing tax to both and having to file a dispute.