Real Estate Tax Calc
How states tax real estate gains
The federal government taxes long-term capital gains at 0%, 15%, or 20% depending on your income. Most states do not have a separate, lower capital gains rate — they tax capital gains as ordinary income at the same rate as wages and interest. That means the state capital gains rate on a rental sale is simply your state's ordinary income tax rate, regardless of how long you held the property.
High-tax states like California (up to 13.3%), New York (up to 10.9%), Oregon (up to 9.9%), and Minnesota (up to 9.85%) can add substantially to a real estate sale's total tax burden.
States with no income tax
Nine states have no broad-based individual income tax as of 2025: Alaska, Florida, Nevada, New Hampshire (interest and dividends only, no wage income), South Dakota, Tennessee, Texas, Washington (no income tax, though a 7% capital gains tax on certain investment gains above $250,000 exists), and Wyoming. Investors in these states owe only the federal tax on real estate gains, which is a meaningful advantage at sale.
Note that where the property is located — not necessarily where you live — determines state tax on the sale in most states. If you live in Texas but own a rental in California, California will tax the gain.
Depreciation recapture at the state level
Most states that have an income tax also tax the recapture gain as ordinary income without any special cap. While federal recapture is capped at 25%, your state may add its full ordinary income rate on top of that, bringing the combined federal-plus-state rate on the recapture portion to 35–38% in high-tax states. The state depreciation recapture calculator guide covers this in more detail.
Nonresident withholding at closing
If you sell property in a state where you are not a resident, that state often requires the closing agent to withhold a portion of the proceeds and remit it as a prepayment of the state tax you will owe on the gain. Rates and mechanics vary — commonly a percentage of the gross sales price or of the gain, frequently in the 2–8% range — and states like California, Georgia, Colorado, Maryland, and others each have their own form and threshold. The withholding is not an extra tax; it is a credit against your actual liability, and you file a nonresident return for that state to reconcile and claim any refund. This is separate from federal FIRPTA withholding, which applies only when the seller is a foreign person. Plan for the cash-flow hit at closing even if your ultimate tax turns out to be lower.
Two states, one gain: the resident credit
If you live in one state and sell a rental in another, both may assert the right to tax the same gain — your resident state taxes your worldwide income, and the property's state taxes income sourced there. The safety valve is the credit for taxes paid to another state: your resident state generally gives you a credit for the tax you paid to the property's state, so you are not fully double-taxed. The credit is usually limited to the lower of the two states' tax on that income, which means your effective rate is essentially the higher of the two. Example: a Texas resident (no state income tax) who sells a California rental owes California tax with no offsetting resident credit to reclaim, while a New York resident selling a New Jersey rental pays New Jersey and takes a New York credit. File the nonresident return first, then the resident return, so the credit computes correctly.
Worked comparison: California versus a no-tax state
Suppose you have a $300,000 gain on a rental sale, including $80,000 of depreciation recapture. Federally, the recapture is taxed at up to 25% ($20,000) and the remaining $220,000 at long-term capital-gain rates — say 15% ($33,000) — for roughly $53,000 of federal tax, plus possibly the 3.8% net investment income tax. Now layer state tax. In Texas or Florida: zero additional state tax. In California at a 9.3% marginal rate: the full $300,000 is taxed as ordinary income, adding about $27,900 — with no lower rate for the capital-gain portion and no cap on the recapture portion. The state layer alone can swing your after-tax proceeds by tens of thousands of dollars, which is why where the property sits matters as much as your federal bracket.
Do states honor a 1031 exchange?
Most states conform to federal law and defer the gain when you complete a valid 1031 exchange, so the state tax rides forward with the federal deferral. Two wrinkles matter. First, some states impose a clawback: California, for instance, requires you to keep reporting the deferred California-source gain on an annual information return (FTB Form 3840) even after you move away or exchange into out-of-state property, and it taxes that gain when you finally cash out. Second, a few states have historically differed — Pennsylvania did not allow 1031 deferral for personal income tax until it conformed for exchanges in tax years beginning after December 31, 2022. Confirm your specific state's treatment before assuming a federal exchange also shelters you from state tax.
Planning levers for the state layer
You have real control over the state bite. Timing: if you plan to relocate, understand that the property's state can still tax the source gain regardless of where you live, so moving to a no-tax state before selling out-of-state property may not help. Installment sales can spread the gain across years and keep you in lower state brackets, though the property's state generally still taxes the sourced gain each year. 1031 exchanges defer both layers (subject to clawback). The Section 121 exclusion on a former primary residence shelters up to $250,000/$500,000 from both federal and most state tax. And the 3.8% net investment income tax is federal only — no state adds its own version. Model the combined federal-plus-state result before you list, because the state can be the difference between a good sale and a great one.
Special situations: entities, part-year residency, and multiple owners
A few structures complicate the state picture. If you hold the rental in a partnership or multi-member LLC, the gain flows through on a Schedule K-1 and each owner reports their share to the property's state — often requiring a nonresident return in that state, and sometimes a composite return the entity files on the owners' behalf. If you move during the year you sell, most states require a part-year resident return that sources the gain to where it belongs; simply changing your address before closing rarely escapes the source state's tax. Community property states can change each spouse's share of the gain and the basis step-up available at a spouse's death, which affects the taxable amount. And if you inherited the property, the step-up in basis at the decedent's death resets basis to fair market value for federal purposes and in most states, dramatically shrinking the taxable gain. Because these interactions vary by state and can trigger filing obligations you would not otherwise have, confirm the sourcing and filing rules for the specific state before you sell rather than after.
Frequently asked questions
Do all states tax real estate capital gains?
No. Nine states have no broad-based income tax and therefore no state-level capital gains tax. Most other states tax gains as ordinary income at the applicable state rate.
Does state capital gains tax apply where the property is or where I live?
Generally, the state where the property is located can tax the gain. Your home state may also tax it if you're a resident — with a credit to avoid double taxation.
Is state recapture taxed at the same rate as the rest of the gain?
Usually yes. Most states tax all income, including recapture gain, at ordinary income rates with no special cap like the federal 25% ceiling.
What is nonresident withholding on a property sale?
Many states require the closing agent to withhold a percentage of the sale price or gain when the seller is a nonresident, as a prepayment of state tax. It is credited against your actual liability when you file a nonresident return, and any excess is refunded. It is separate from federal FIRPTA withholding, which applies only to foreign sellers.
If I move to a no-income-tax state, can I avoid state tax on selling my rental?
Not on a rental located in a taxing state. That state taxes the gain sourced there regardless of where you live. Moving only helps for income sourced to your new state, and some states (like California) claw back deferred gain from prior exchanges even after you leave.
Do states recognize a 1031 exchange?
Most do and defer the state tax along with the federal deferral. Watch for clawback rules (California's FTB Form 3840) and confirm your state's conformity, as a handful have historically differed.
Do I have to file a tax return in a state where I don't live if I sell property there?
Usually yes. Selling real estate in a state generally creates source income there and requires a nonresident return, even if you live elsewhere. That return is also how you reconcile any nonresident withholding taken at closing and claim a refund of any excess.
Will I be taxed twice if I live in one state and sell a rental in another?
Generally no, thanks to the resident credit. The property's state taxes the source gain, and your resident state gives you a credit for the tax paid there — usually limited to the lower of the two states' tax on that income. The practical result is that you effectively pay the higher of the two states' rates, not both stacked on top of each other. File the nonresident return first so the resident-state credit computes correctly.
Does the federal 25% cap on depreciation recapture apply at the state level?
No. The 25% maximum rate on unrecaptured Section 1250 gain is a federal rule. Most states with an income tax fold recapture into ordinary income with no special cap, so the state portion can be taxed at your full state ordinary rate on top of the federal 25%.
Sources
Educational information and estimates only. Not tax advice. Tax rules change and vary by situation; consult a qualified tax professional before acting.