States With Capital Gains Surtaxes or Special Rates on Real Estate

Six jurisdictions charge more once income passes $1 million or more

These surtaxes and top brackets matter most in the year of a sale, because a single large gain can push taxable income over a threshold the owner never reaches otherwise. State millionaire surtaxes on real estate gains works through that one-year spike and the ways to spread or defer it.

• Massachusetts: the Department of Revenue applies a 4% surtax to taxable income over $1,107,750 for 2026 ($1,083,150 for 2025), counting long-term gains. Its rate table shows 5% on long-term gains and 8.5% on short-term gains. See the Massachusetts page.
• California: Revenue and Taxation Code section 17043 adds 1% on taxable income over $1,000,000, on top of the rate schedule that reaches 12.3%. See the California page.
• Minnesota: section 290.033 imposes 1% on net investment income over $1,000,000, using the federal definition but excluding gain on class 2a agricultural land. See the Minnesota page.
• New Jersey: the NJ-1040 instructions apply 10.75% to taxable income over $1,000,000. See the New Jersey page.
• District of Columbia: the Office of Tax and Revenue applies 10.75% above $1,000,000 for tax years after 2021.
• New York: the IT-201 instructions for 2025 run brackets of 9.65%, 10.3% and 10.9%, the last above $25,000,000; New York City residents add city tax. See the New York page.

Five states tax long-term gains below ordinary rates, by exclusion or by a separate rate

Each relief provision has conditions on holding period, asset type or where the asset is located, so read the statute before relying on it for a rental.

Exclusions work differently from a lower rate. An exclusion removes part of the gain before the ordinary schedule applies, so its value depends on your bracket; a separate rate, as in Montana, replaces the schedule for the gain. Both apply only to gain the state taxes, which for a nonresident is generally gain on property located in that state.

• Wisconsin: Publication 103 allows a deduction of 30% of net capital gain on assets held more than one year, 60% for farm assets, against rates that top out at 7.65%. See the Wisconsin page.
• North Dakota: section 57-38-30.3 reduces taxable income by 40% of net long-term capital gain allocated to the state, and the top rate is 2.5%. See the North Dakota page.
• Montana: section 15-30-2103 taxes net long-term capital gains at 3.0% up to a threshold, $95,000 for joint filers less other taxable income, and 4.1% above. See the Montana page.
• Arizona: A.R.S. 43-1022 subtracts 25% of net long-term capital gain from assets acquired after December 31, 2011, with a gifted or inherited asset dated to the transferor's acquisition. See the Arizona page.
• Vermont: 32 V.S.A. 5811 excludes either the first $5,000 of gain or 40% of gain on assets held more than three years, capped at the lesser of 40% of federal taxable income or $350,000, and not for a primary or nonprimary residence. See the Vermont page.

Washington and Colorado are exceptions that often get misread

Washington's capital gains excise tax under RCW 82.87.040 is 7%, plus 2.9% on gains over $1,000,000 from January 1, 2025, but RCW 82.87.050 exempts real estate transferred by deed or real estate contract. A Washington rental sale owes the real estate excise tax instead; selling a rental in a no-income-tax state covers it.

Colorado once offered a broad capital gain subtraction for Colorado property. The Department of Revenue says that for tax years from January 1, 2022, it is allowed only for farmers who file Schedule F and sell agricultural real property, so a rental owner in Colorado gets no special rate. See the Colorado page.

Worked example: a $500,000 land gain in three states

Hypothetical, round figures, applying each state's top rate to the gain alone. A resident sells investment land held ten years for a $500,000 long-term gain, with enough other income to be in each state's top bracket.

In Wisconsin, 30% is deducted, so $350,000 is taxed at 7.65%, about $26,775. In North Dakota, 40% is excluded, so $300,000 is taxed at 2.5%, about $7,500. In Massachusetts, the gain is taxed at 5%, $25,000, with the 4% surtax added only on taxable income above $1,107,750.

Brackets, deductions and federal adjustments change these figures, and a rental with depreciation adds a federal recapture layer the states treat differently. Run your own numbers with your CPA.

An exchange defers the state layer where the state follows section 1031

States that start from federal income generally honor the section 1031 deferral, so neither the surtax nor the base state tax is due on an exchange. Some states track gain deferred into out-of-state replacement property and tax it on the later sale; does a 1031 defer state capital gains tax lists them.

Replacement property can be in any state, including a fractional interest in a traditional DST. The state pages linked above carry each state's withholding form, transfer tax and claw-back rule.