Indiana Capital Gains Tax Rate (2026)
Indiana capital gains tax overview
Indiana has a flat 2.95% rate. Some counties add a local income tax of 0.5–2.9%.
Federal + Indiana combined rates
Your total capital gains tax bill includes both layers — federal and state. Here is what an Indiana investor pays in 2026 for long-term gains:
| Federal Long-Term Rate | Indiana State Rate | Combined Rate | Plus NIIT (if applicable) |
|---|---|---|---|
| 0% | 2.95% | 2.95% | 6.8% |
| 15% | 2.95% | 17.9% | 21.8% |
| 20% | 2.95% | 22.9% | 26.8% |
The NIIT (Net Investment Income Tax) adds an extra 3.8% for taxpayers whose MAGI exceeds $200,000 (single) or $250,000 (married filing jointly). It is a federal tax only — Indiana does not have an equivalent.
How Indiana compares to other states
Indiana's top rate of 2.95% places it in the lower-middle tier of state capital gains taxation. For comparison:
- Zero-tax states (FL, TX, NV, etc.): 0% — total with 15% federal = 15%
- Low-rate states (AZ, IN, PA): 2.5–3.1% — total with 15% federal = 17.5–18.1%
- Indiana: 2.95% — total with 15% federal = 17.9%
- High-rate states (NY, NJ): 10.75–10.9% — total with 15% federal = ~26%
- California: 13.3% — total with 15% federal = 28.3%
Tax-reduction strategies for Indiana residents
With a top state rate of 2.95%, minimizing capital gains tax is particularly important in Indiana. Key strategies:
- Hold over 1 year for long-term federal rates (0/15/20%). Indiana does not offer a preferential state rate, but federal savings alone are often 7–17%.
- Tax-loss harvesting: Offset your gains with losses realized in the same year. A $20,000 loss offsets $20,000 of gains dollar-for-dollar, saving up to 23% ($4,590) on that $20,000 at top rates.
- 0% bracket planning: In lower-income years (retirement, sabbatical, between jobs), realize gains at the federal 0% rate. You still owe Indiana state tax, but eliminating the federal component is significant.
- Donate appreciated stock directly to charity or a donor-advised fund to avoid capital gains tax entirely while generating a charitable deduction for the full fair market value.
- Installment sales: If selling a business or real estate, structuring as an installment sale spreads the gain over multiple years, potentially keeping each year's gain in a lower bracket.
Detailed Indiana capital gains tax rules
Tax history and legal basis
Indiana taxes capital gains as ordinary income at a flat rate of 2.95% (effective 2025). The state has one of the lowest flat rates in the nation.
Exemptions and special treatment
Indiana does not offer preferential capital gains rates. However, county income taxes (ranging from 0.5% to 3.38%) are added on top of the state rate, making the effective rate vary by county. Marion County (Indianapolis) adds 2.02%, for a combined 4.97%.
Filing requirements
File Form IT-40 (resident). Indiana starts with federal AGI. County taxes are calculated on the same form. Estimated payments required if owing $1,000+. Filing deadline is April 15.
Recent changes and legislative updates
Indiana reduced its flat rate from 3.05% to 2.95% in 2025, continuing a multi-year reduction plan. The state aims to reach 2.9% by 2027. County taxes have remained stable but vary significantly — always check your specific county's rate.
Worked example: $50,000 capital gain in Indiana
Here's exactly what an Indiana resident would owe on a $50,000 long-term capital gain with $80,000 in other income (single filer, 2026):
| Component | Amount | Notes |
|---|---|---|
| Capital gain | $50,000 | Long-term (held over 1 year) |
| Federal tax (15%) | −$7,500 | Based on $80,000 ordinary income + gain |
| Indiana state tax (2.95%) | −$1,475 | Applied to the full gain amount |
| Total tax owed | −$8,975 | Federal + state combined |
| You keep | $41,025 | 82.0% of your gain |
After both federal and Indiana state tax, you keep $41,025 of your original $50,000 gain. The effective combined rate is 17.9%. This is well below the national average, making Indiana one of the more tax-friendly states for investors.
Frequently asked questions — Indiana
Does Indiana tax short-term and long-term gains differently?
No — Indiana taxes both short-term and long-term capital gains as ordinary income at the same rates as wages. There is no state-level preferential rate for patience. The federal system, however, taxes long-term gains at 0/15/20% vs. up to 37% for short-term — a significant difference that applies regardless of state.
Do I need to file an Indiana tax return if I only have capital gains?
If you have capital gains income and meet Indiana's filing threshold, you are required to file an Indiana state income tax return. The threshold is typically similar to the standard deduction amount — check the IN Department of Revenue for the current year's filing requirements.
What if I moved to Indiana mid-year?
If you moved to Indiana during the year, you are a part-year resident. Indiana generally taxes capital gains realized while you were an Indiana resident. Gains realized before you moved may be taxable by your prior state. Keep detailed records of when each sale occurred relative to your move date.