Nine states have no capital gains tax because they impose no personal income tax at all: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming.1Tax Foundation. State Individual Income Tax Rates and Brackets, 2025 Missouri joined the list in a different way, becoming the first income-tax state to fully exempt capital gains for individuals effective January 1, 2025. Washington is a partial exception: it has no broad income tax but does levy a 7% excise tax on very large long-term gains. Federal capital gains tax applies no matter where you live.
The Nine No-Income-Tax States
If you’re domiciled in Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, or Wyoming, your state does not tax profits from selling stocks, bonds, or most other investments. You owe only the federal rate.
Two of these states arrived here recently. Tennessee’s Hall income tax, which applied to dividends and interest at rates up to 6%, was phased down and fully repealed on January 1, 2021.2Tennessee Department of Revenue. HIT-3 – Hall Income Tax Repealed Beginning January 1, 2021 New Hampshire followed the same path, eliminating its interest and dividends tax effective January 1, 2025 after a phased reduction from 5% down to 3%.3NH Department of Revenue Administration. Repeal of NH Interest and Dividends Tax Now in Effect Neither state ever taxed capital gains directly, but with those repeals complete, they now impose no tax on any form of investment return.
Washington’s 7% Capital Gains Excise Tax
Washington belongs on the no-income-tax list, but its treatment of capital gains is not zero. Since 2022, the state has imposed a 7% excise tax on long-term capital gains for individual taxpayers.4Cornell Law School Legal Information Institute. Wash. Admin. Code 458-20-300 – Capital Gains Excise Tax-Overview and Administration Businesses are not subject to it, and the tax only applies to gains above a substantial deduction.
The standard deduction is $278,000 for the 2025 tax year and adjusts annually for inflation.5Washington Department of Revenue. Capital Gains Tax Married couples and registered domestic partners share that same $278,000 deduction whether they file jointly or separately. A $200,000 long-term gain owes nothing to Washington. A $400,000 gain owes 7% on the amount above the deduction.
Several categories of gains are exempt regardless of size:
- Real estate, including interests in privately-held entities whose value comes primarily from real property they own directly.
- Gains on assets held in qualifying retirement accounts.
- Timber and timberlands, including distributions from REITs tied to timber sales.
- Property qualifying for depreciation or expensing under federal tax rules.
- Assets sold under government condemnation or imminent threat of it.
- Interests in qualifying family-owned small businesses.
Washington also allows a charitable donation deduction of up to $100,000 against taxable capital gains.4Cornell Law School Legal Information Institute. Wash. Admin. Code 458-20-300 – Capital Gains Excise Tax-Overview and Administration Most Washington residents never owe this tax. It functions as a high-earner surcharge on large investment profits, not a broad capital gains tax.
Missouri’s Full Exemption Starting in 2025
Missouri became the first state with an income tax to completely exempt capital gains for individual filers. Governor Mike Kehoe signed House Bill 594 into law, allowing individuals to deduct 100% of all capital gains reported on their federal return when calculating Missouri adjusted gross income.6Missouri Department of Revenue. Missouri; First State to Fully Exempt Capital Gains Tax The exemption covers both short-term and long-term gains from assets including stocks, real estate, and cryptocurrency. All other income remains subject to Missouri’s regular income tax rates.
The exemption took effect retroactively to January 1, 2025, so Missouri residents filing 2025 returns already benefit. If your income comes primarily from investment gains rather than wages, Missouri’s tax burden drops sharply compared to other income-tax states.
States That Reduce But Don’t Eliminate the Tax
Between full exemption and ordinary-income treatment, a few states offer partial deductions. North Dakota is the clearest example, allowing residents to exclude 40% of qualifying long-term capital gains from state taxable income. The asset must have been acquired on or after January 1, 2007 and held for more than three years to qualify. That effectively cuts the state rate on qualifying gains by nearly half.
Other states offer narrower preferences tied to specific asset types, such as gains from selling in-state small businesses or farmland. These won’t zero out your state bill, but on a large sale they can matter.
Federal Tax Still Applies Everywhere
Living in a no-capital-gains-tax state doesn’t eliminate your tax liability. The federal government taxes long-term capital gains (assets held longer than one year) at three rates based on your taxable income:7Internal Revenue Service. Topic No. 409, Capital Gains and Losses
- 0% if taxable income is below $49,450 (single) or $98,900 (married filing jointly) for 2026.
- 15% between $49,451 and $545,500 (single), or $98,901 and $613,700 (married filing jointly).
- 20% above those thresholds.
Short-term gains on assets held one year or less are taxed at your ordinary federal rate, which can reach 37%.7Internal Revenue Service. Topic No. 409, Capital Gains and Losses The Net Investment Income Tax adds another 3.8% for individuals with modified adjusted gross income above $200,000 (single) or $250,000 (married filing jointly).8Internal Revenue Service. Net Investment Income Tax So a high earner in a no-income-tax state can still face a combined federal rate of 23.8% on long-term gains. Real savings compared to California’s additional 13.3%, but not tax-free.
Residency Rules if You’re Relocating to Save Tax
Moving to a no-income-tax state before selling appreciated assets is one of the most common tax-planning strategies for investors. It’s also one of the most heavily audited. The benefit hinges on whether you’ve genuinely changed your domicile: the place you consider your permanent home and intend to remain.
Domicile Versus Statutory Residency
States use two independent tests. Domicile is your true, permanent home, determined by intent and the totality of your circumstances; you can have only one at a time. Statutory residency typically applies if you maintain a permanent place of abode in a state and spend more than 183 days there during the year, even if you’re domiciled elsewhere. Meet either test and that state can tax you as a full-year resident.
That means your new state may claim you by domicile while your former state claims you as a statutory resident because you kept an apartment there and visited often enough. People who split time between two states or relocate mid-year are the most common targets for dual-residency audits.
Making a Clean Break
If you’re leaving a high-tax state specifically to sell appreciated assets, the former state’s revenue department will scrutinize you aggressively. Actions matter more than declarations. Change your voter registration, get a new driver’s license, move your primary banking relationships, update estate planning documents, and file a change of address. Then your actual living patterns need to match. Auditors look at where your spouse and children live, where you attend religious services, where your doctors are, and how many days you spend in each state.
Timing matters as much as paperwork. Selling a large position two weeks after changing your driver’s license, while your family still lives in your prior state, invites scrutiny. The safer approach is to complete the move, spend a full tax year establishing the new domicile, then execute the sale.
Part-Year Residents and Where Income Is Sourced
If you sell during the same year you change states, you’ll file as a part-year resident in both. Income gets allocated by your residency status when it was earned or received. Most states grant a credit for taxes paid to another state on the same income, which prevents true double taxation but not the complexity.
Even after a clean move, your former state can still tax gains on tangible assets located there. A Florida resident who sells a rental property in New York owes New York tax on that gain, because the income is sourced to where the property sits. Gains from intangible assets like stocks and bonds are generally sourced to your state of domicile, which is the primary reason investors relocate before selling large equity positions.
1031 Exchange Clawback Rules
Real estate investors who have used Section 1031 like-kind exchanges to defer gains should watch for state-level clawback rules. Most states follow federal treatment, so the gain stays deferred as long as you follow the rules. California, Oregon, Montana, and Massachusetts do not. They require you to pay state tax on any gain that accrued within their borders, even if the replacement property is elsewhere. Exchange California property into a Texas property, sell the Texas property later, and California still claims tax on the gain that built up while the asset was in California.
What These States Charge You Instead
No state gives up a major revenue source without making it up somewhere. The tradeoff for zero capital gains tax usually shows up in sales tax, property tax, or both.
Sales taxes run high in several of these states. Tennessee charges 7% at the state level and allows local jurisdictions to add up to 2.75%, pushing combined rates near 10% in many areas. Texas has a 6.25% state rate plus local additions that top 8% in most metros. Nevada and Washington also lean heavily on sales tax.
Property taxes are the other lever. New Hampshire, with no income tax and no sales tax, has an effective property tax rate on owner-occupied housing of roughly 1.50%, among the top six states nationally.9Tax Foundation. Property Taxes by State and County, 2026 Texas is also notably high. Homeowners in these states may save on capital gains and pay significantly more every year on their primary residence.
Some no-income-tax states also impose gross receipts taxes on businesses instead of corporate income taxes. Nevada, Texas, and Washington all use this approach; the tax applies to total sales revenue without deducting expenses, which can hit thin-margin businesses harder than a traditional corporate income tax. Only South Dakota and Wyoming levy neither corporate income tax nor gross receipts tax. Alaska and Wyoming also raise significant revenue from severance taxes on oil, gas, and mineral extraction, which other states cannot easily replicate.
The right question isn’t whether a state taxes capital gains but what your total tax picture looks like after sales tax, property tax, and fees. A retiree living off investment income in New Hampshire saves heavily on capital gains but may pay $15,000 or more a year in property tax on a home that would cost far less to own in a state with a modest income tax. Run the full calculation before you move.