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.
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.
Sources
Educational information and estimates only. Not tax advice. Tax rules change and vary by situation; consult a qualified tax professional before acting.