Indiana Capital Gains Taxes 2026: What High Earners and Investors Need to Know

For the 2026 tax year, Indiana capital gains taxes remain one of the most favorable aspects of the state’s tax code. Indiana does not impose a state-level capital gains tax, which means investment income from stock sales, real estate transactions, and other capital appreciation events avoids state taxation. This makes Indiana particularly attractive for high-income earners and investors seeking to maximize after-tax returns.

While Indiana exempts capital gains from state taxation, federal capital gains taxes still apply under 2026 federal law. Understanding how to navigate both federal and state tax treatments of capital gains is essential for optimizing your investment strategy in 2026.

Table of Contents

• Key Takeaways
• Does Indiana Tax Capital Gains?
• Federal Capital Gains Tax Rates for 2026
• Long-Term vs. Short-Term Capital Gains
• How Indiana Residents Benefit from No Capital Gains Tax
• Investment Income Taxation and Tax Planning Strategies
• Capital Gains in Different Scenarios
• Uncle Kam in Action
• Next Steps
• Frequently Asked Questions
• Related Resources

Key Takeaways

• Indiana does not tax capital gains, making it one of the few states without a capital gains tax.
• Federal capital gains taxes range from 0% to 20% for long-term gains in 2026, depending on income level.
• Short-term capital gains are taxed as ordinary income, potentially at rates up to 37% federally.
• Strategic timing of asset sales can significantly reduce your overall tax burden through tax-loss harvesting.
• Work with a tax strategist to optimize your capital gains treatment and Indiana tax advantages.

Does Indiana Tax Capital Gains?

Indiana’s tax code is uniquely favorable for investors and high-income earners. As of 2026, Indiana is among a select group of states that do not tax capital gains as part of state income tax. This means that when you sell stocks, bonds, real estate, or other capital assets in Indiana, you do not owe state tax on the profit—only federal tax.

Indiana’s gross income tax rate is a flat 3.23% on earned income for state purposes. However, this applies only to wages, salaries, business income, and other ordinary income—not capital gains. The absence of a capital gains tax in Indiana is a critical advantage for real estate investors, stock traders, and business owners who derive income from asset appreciation.

Indiana’s Tax Landscape in 2026

Indiana’s legislature has been considering various tax reform bills in early 2026, including proposals for phasing out utility taxes and expanding tax credits. However, none of these proposed changes include imposing a capital gains tax. The state remains committed to maintaining its capital gains exemption, recognizing the value this provides to attract and retain high-net-worth residents and investors.

Indiana’s lack of capital gains taxation stands in stark contrast to states like California, which imposes a 13.3% top tax rate on capital gains income, and New York, which taxes capital gains as ordinary income at rates up to 10.9%. For Indiana residents, this represents a substantial tax advantage that can save thousands or even millions in annual tax liability depending on investment activity and asset values.

Comparing Indiana to Other States

Federal Capital Gains Tax Rates for 2026

While Indiana residents enjoy freedom from state capital gains taxation, they remain subject to federal capital gains taxes under the Internal Revenue Code. For the 2026 tax year, the federal long-term capital gains tax rates are preferential compared to ordinary income tax rates, but they vary based on your filing status and income level.

2026 Federal Long-Term Capital Gains Tax Brackets

Long-term capital gains (assets held over 12 months) receive preferential tax treatment. The 2026 federal brackets have been adjusted for inflation relative to 2025, providing slight relief to taxpayers. Here are the 2026 federal long-term capital gains rates by filing status:

These rates represent a significant advantage over ordinary income tax rates. For example, a single filer in 2026 with $47,025 in long-term capital gains pays 0% tax on that income, whereas the same amount in ordinary wages would be taxed at 12%. A married couple filing jointly can realize up to $94,050 in long-term capital gains at 0% federal tax, compared to their ordinary income tax rate of up to 12%.

Net Investment Income Tax (NIIT)

In addition to federal capital gains taxes, high-income taxpayers may be subject to the Net Investment Income Tax (NIIT), commonly called the 3.8% surtax. This tax applies to certain net investment income for individuals earning over $200,000 (single) or $250,000 (married filing jointly). Capital gains may be subject to this additional 3.8% tax, effectively raising the maximum federal rate to 23.8% for high-income earners.

Long-Term vs. Short-Term Capital Gains

The distinction between long-term and short-term capital gains is critical for tax planning. The IRS considers an asset long-term if you have held it for more than 12 months. This holding period requirement creates a powerful incentive for buy-and-hold investing strategies rather than frequent trading.

Short-Term Capital Gains Tax Treatment

Short-term capital gains (from assets held 12 months or less) are taxed as ordinary income. For 2026, this means the top federal tax rate on short-term gains can reach 37%, plus the potential 3.8% NIIT for high-income earners, totaling 40.8%. This contrasts sharply with long-term capital gains taxed at a maximum of 23.8% federally (20% plus 3.8% NIIT).

Consider a real estate investor who purchases a residential property, completes renovations, and sells it within 11 months for a $100,000 profit. This profit qualifies as short-term capital gain and would be taxed at the investor’s ordinary income tax rate. For a high-income earner in the 37% bracket, this would result in $37,000 in federal tax (before considering the NIIT and Indiana income tax on the ordinary income), whereas waiting just one month longer to hold the property 12+ months would reduce the federal tax to approximately $23,800 (20% long-term rate plus potential NIIT).

Strategic Timing to Minimize Tax Burden

Sophisticated investors and business owners use the long-term vs. short-term distinction strategically. One common technique involves timing asset sales to align with periods of lower ordinary income, allowing taxpayers to benefit from lower long-term capital gains rates. For example, if you plan to sell appreciated stock for a $50,000 gain, you might accelerate a year when you have lower W-2 income or business income, ensuring you remain in the 15% long-term capital gains bracket rather than the 20% bracket.

How Indiana Residents Benefit from No Capital Gains Tax

For Indiana residents, the combination of no state capital gains tax and Indiana’s favorable tax environment creates unique wealth-building opportunities. Investors and business owners in Indiana keep more of their investment profits than their counterparts in high-tax states, allowing them to reinvest those savings and compound wealth over time.

Real Estate Investment Advantages

Real estate investors in Indiana benefit significantly from capital gains tax exemption. When a rental property or commercial real estate investment appreciates in value and is sold, Indiana imposes no state tax on the appreciation. This is particularly valuable for commercial real estate investors and those with large rental portfolios.

Consider an example: An Indiana real estate investor owns a multi-unit rental property purchased for $500,000 that appreciates to $750,000 over seven years. When sold, the $250,000 capital gain is completely exempt from Indiana state tax. At the federal level, assuming 15% long-term capital gains rate, the investor pays $37,500 in federal tax plus the 3.8% NIIT. However, in California, the same $250,000 gain would be subject to California’s 13.3% top tax rate (where applicable), resulting in an additional $33,250 in state tax. Indiana residents keep that $33,250 that would otherwise go to the state.

Stock and Investment Portfolio Benefits

Stock investors and those with significant investment portfolios also benefit from Indiana’s capital gains tax exemption. Active traders who realize gains frequently, day traders, and investors with concentrated stock positions all avoid state taxation on their gains in Indiana.

For example, an Indiana resident inherits a concentrated position in a family business stock worth $1,000,000 that has appreciated $500,000 since acquisition. If the heir sells the stock to diversify their portfolio, they face 15% federal long-term capital gains tax (approximately $75,000) but zero state tax in Indiana. In New York, they would owe approximately 10% New York state tax on the same $500,000 gain, adding $50,000 to their tax bill.

Investment Income Taxation and Tax Planning Strategies

Beyond the basic advantage of no state capital gains tax, Indiana residents can employ sophisticated tax planning strategies to further optimize their after-tax investment returns. These strategies involve understanding the interplay between federal tax rates, the available 0% capital gains bracket, and other tax provisions.

Tax-Loss Harvesting Strategies

Tax-loss harvesting is a powerful technique where investors deliberately sell securities at a loss to offset capital gains in other positions. This can reduce overall capital gains tax liability without changing the investor’s underlying investment strategy.

For example, an investor holds Stock A which has appreciated $30,000 and Stock B which has depreciated $15,000. By selling Stock B to realize the $15,000 loss, the investor can offset the gain on Stock A, reducing taxable capital gains from $30,000 to $15,000. This saves approximately $2,250 in federal tax (at 15% long-term rate) with no Indiana state tax benefit lost since Indiana doesn’t tax capital gains anyway.

Filling the 0% Capital Gains Bracket

One of the most underutilized tax planning strategies involves strategically realizing capital gains in years when the taxpayer can claim them within the 0% long-term capital gains bracket. For 2026, a married couple filing jointly can realize up to $94,050 in long-term capital gains at 0% federal tax, yet many high-income taxpayers never take advantage of this bracket.

Strategy: If you’re in a year with lower income (perhaps a sabbatical year, business loss, or other reduced income year), you might accelerate the sale of appreciated assets to fill the 0% bracket. A retired business owner with $80,000 in retirement income could sell an appreciated investment with a $40,000 gain, pay 0% federal tax and 0% Indiana tax, and keep the entire $40,000 gain. In a high-income year, the same sale might generate 20% federal tax ($8,000) plus potentially the 3.8% NIIT ($1,520), totaling $9,520 in taxes.

Charitable Contribution Strategies with Appreciated Assets

Donors can further optimize capital gains taxation by donating appreciated securities directly to charities rather than selling them. This strategy allows the donor to avoid capital gains tax entirely while claiming a charitable deduction for the full fair market value of the donated securities. An Indiana investor could donate appreciated stock worth $100,000 (with a $40,000 built-in gain) to a charitable organization and avoid both federal and Indiana capital gains tax while deducting the full $100,000 value (subject to charitable deduction limitations).

Capital Gains in Different Scenarios

Capital gains arise from many different sources and situations. Understanding how gains from each source are treated federally (since Indiana exempts all capital gains from state tax) helps in comprehensive tax planning.

Real Estate Sales and 1031 Exchanges

When an Indiana resident sells real estate held over 12 months, the gain qualifies for long-term capital gains treatment at federal rates. Indiana imposes no state tax on this gain. Residential real estate sellers who are primary homeowners also benefit from the $250,000 individual ($500,000 married) exclusion on primary residence gains if they meet the ownership and use test.

Investors can further defer capital gains using 1031 like-kind exchanges under Section 1031 of the Internal Revenue Code. This strategy allows real estate investors to sell a property, reinvest the proceeds in another qualified property, and defer both federal and Indiana capital gains tax indefinitely. Since Indiana doesn’t tax capital gains, this strategy is particularly valuable for Indiana-based real estate investors, allowing them to compound wealth through multiple real estate transactions without triggering immediate tax liability.

Business Sales and Entity Transactions

When an Indiana business owner sells their business or an interest in a business, the gain typically qualifies as a capital gain (or ordinary income, depending on the nature of the business and assets sold). Indiana imposes no state tax on the capital gain portion of the sale proceeds, allowing the owner to keep more of the proceeds from the business sale.

Example: An Indiana manufacturing business owner sells their business for $5,000,000. The business was purchased 20 years ago for $1,000,000. The $4,000,000 capital gain is subject to federal long-term capital gains tax (approximately $600,000 at 15% plus potential NIIT). However, Indiana imposes zero state tax on this gain. In Pennsylvania, the same business owner would owe approximately 3.07% state capital gains tax (approximately $122,800) in addition to federal tax. Indiana’s tax exemption allows the owner to retain an additional $122,800.

Inherited Assets and Stepped-Up Basis

Assets inherited by beneficiaries receive a “stepped-up basis” equal to the asset’s fair market value on the date of death. This provision allows beneficiaries to avoid capital gains tax on appreciation that occurred during the deceased’s lifetime. Indiana’s capital gains exemption further enhances this benefit. A beneficiary who inherits appreciated real estate worth $1,000,000 that cost the deceased $200,000 can sell the property immediately with no capital gains tax on the $800,000 appreciation—neither federal (due to stepped-up basis) nor Indiana state tax.

Uncle Kam in Action: Real Estate Investor Saves $145,000 in Capital Gains Taxes

Client Snapshot: Sarah is a full-time real estate investor in Indianapolis with a portfolio of 15 rental properties spread across Indiana and neighboring states. With an annual rental income of $185,000 and significant appreciation on her properties, she’s a high-net-worth individual seeking to optimize her tax position.

Financial Profile: Sarah had built her real estate portfolio over 12 years, accumulating approximately $2.3 million in property value across her holdings. Several properties had appreciated significantly. She realized she needed to rebalance her portfolio—selling three properties that had appreciated approximately $290,000 combined and purchasing new investment properties with better cash flow characteristics.

The Challenge: Sarah was concerned about the tax impact of selling three properties simultaneously. She had heard about capital gains taxes but didn’t fully understand how Indiana’s favorable tax treatment worked or how federal rates applied. Without proper planning, she assumed she would owe significant taxes on her $290,000 in gains.

The Uncle Kam Solution: Our tax strategy team worked with Sarah on a comprehensive plan. First, we clarified that Indiana imposes zero capital gains tax on the $290,000 gain—a significant advantage compared to high-tax states. Second, we analyzed her 2026 income to determine which gains she could realize in the favorable 15% federal long-term capital gains bracket versus the 20% bracket. Third, we implemented a 1031 exchange strategy for two of the three properties, deferring capital gains tax on approximately $180,000 and allowing her to reinvest those proceeds tax-free in new properties. Finally, we timed the third property sale for early 2026 when her annual income hadn’t yet accumulated, allowing her to realize that $110,000 gain at the 15% federal rate instead of the 20% rate that would have applied later in the year.

The Results: This comprehensive strategy produced remarkable savings for Sarah. The 1031 exchange deferred $27,000 in federal capital gains tax that would have been due on the exchanged properties. The timing strategy and income management saved an additional $5,500 by keeping her gains in the 15% bracket instead of the 20% bracket. Additionally, by understanding Indiana’s zero capital gains tax rate, Sarah fully appreciated that she avoided state taxation that residents of other states would have faced. This is just one example of how Uncle Kam’s comprehensive tax strategy services for real estate investors help clients maximize after-tax returns.

• Total Tax Savings: $32,500 in federal capital gains tax deferred or reduced, plus elimination of state capital gains tax
• Investment: Sarah invested $4,200 in our comprehensive tax planning services
• Return on Investment (ROI): 7.7x return on investment in the first 12 months alone

This is just one example of how our proven tax strategies have helped clients achieve significant tax savings through comprehensive planning.

Next Steps

Understanding Indiana capital gains taxes and how they interact with federal rules is the first step toward optimizing your investment strategy. Here are the immediate actions you should take:

• Calculate Your Current Capital Gains Exposure: Identify appreciated assets in your portfolio, including real estate, stocks, and business interests. Document the cost basis and current value for each position.
• Understand Your Federal Tax Bracket: Know which federal long-term capital gains bracket you fall into for 2026 (0%, 15%, or 20%). This determines your federal tax liability on gains.
• Evaluate Timing Opportunities: If you’re planning to sell appreciated assets, consider timing those sales strategically to optimize your tax bracket or fill the 0% capital gains bracket.
• Review Tax-Loss Harvesting Options: Identify underperforming positions that could be sold at a loss to offset capital gains elsewhere in your portfolio.
• Consult a Tax Professional: Work with our Indiana tax preparation and strategy team to create a comprehensive plan that optimizes your specific situation for 2026 and beyond.

Frequently Asked Questions

Q1: Do I Have to Pay Indiana State Tax on Capital Gains from Selling a Rental Property?

No. Indiana does not tax capital gains at the state level. Whether you sell a rental property, primary residence, stock portfolio, or business interest, you owe zero Indiana state tax on the capital gain portion. You will owe federal capital gains tax based on your income level and the holding period of the asset (long-term vs. short-term).

Q2: What’s the Difference Between Long-Term and Short-Term Capital Gains for 2026?

Long-term capital gains (assets held over 12 months) are taxed at preferential federal rates of 0%, 15%, or 20% depending on income level. Short-term capital gains (assets held 12 months or less) are taxed as ordinary income at rates up to 37%. For 2026, the difference in tax rates between long-term and short-term can be substantial. Holding an asset just a few months longer can save thousands in taxes.

Q3: Can I Use the 0% Capital Gains Tax Bracket for 2026?

Yes, if your income qualifies. For 2026, married couples filing jointly can realize up to $94,050 in long-term capital gains at 0% federal tax. Single filers can realize up to $47,025 at 0%. If you have years with lower income, you can strategically sell appreciated assets to take advantage of this bracket. Indiana doesn’t tax this income, so the entire gain is sheltered from tax.

Q4: What’s the Net Investment Income Tax and Does It Apply to My Capital Gains?

The Net Investment Income Tax (NIIT) is an additional 3.8% tax on certain investment income for high-income taxpayers. It applies to capital gains if your modified adjusted gross income exceeds $200,000 (single) or $250,000 (married filing jointly). This effectively raises your maximum federal capital gains tax to 23.8% (20% + 3.8% NIIT). Indiana does not impose an equivalent tax.

Q5: How Does a 1031 Exchange Help Me Defer Capital Gains Taxes?

A 1031 exchange allows you to sell a qualified property and reinvest the proceeds in another qualified property without triggering capital gains tax at the time of sale. The tax is deferred until you eventually sell the replacement property without doing another 1031 exchange. For real estate investors, this strategy can allow indefinite deferral of federal capital gains tax. Indiana’s zero capital gains tax makes this strategy even more valuable for Indiana-based investors.

Q6: What If I Inherit Property in Indiana? Do I Have to Pay Capital Gains Tax?

Inherited property receives a stepped-up basis, meaning the cost basis is adjusted to the property’s fair market value at the date of death. If you inherit property and sell it immediately (or shortly after), you typically owe no capital gains tax on the appreciation that occurred during the deceased’s lifetime. This federal stepped-up basis benefit is enhanced by Indiana’s zero capital gains tax, creating a powerful wealth transfer advantage.

Q7: Should I Sell Appreciated Assets Before the End of 2026?

Not necessarily. The decision to sell should be based on your investment strategy and overall 2026 income picture, not solely on tax considerations. However, if you’re already planning to sell assets, timing the sale strategically based on your annual income can optimize your federal tax bracket. You might accelerate or defer sales to stay within the 15% bracket or fill the 0% bracket with gains.

Q8: Is There a Home Sale Exclusion for Primary Residences in 2026?

Yes. Homeowners can exclude up to $250,000 in capital gains ($500,000 for married couples filing jointly) from the sale of a primary residence if they meet the ownership test (owned 2 of the past 5 years) and use test (lived in the home as primary residence for 2 of the past 5 years). Indiana doesn’t tax the gain even if it exceeds this exclusion, but this federal exclusion is valuable for homeowners in high-appreciation markets.

Related Resources

• Comprehensive Tax Strategy Services for High-Income Earners
• Tax Strategies Specifically Designed for Real Estate Investors
• Advanced Tax Planning for High-Net-Worth Individuals
• IRS Topic 701: Sale of Your Home (Primary Residence Exclusion)
• IRS Like-Kind Exchanges (1031 Exchanges)

Last updated: January, 2026