Minnesota Capital Gains Tax Rate (2026)
Minnesota capital gains tax overview
Four brackets from 5.35% to 9.85%. Minnesota is one of the highest-tax states for capital gains.
Federal + Minnesota combined rates
Your total capital gains tax bill includes both layers — federal and state. Here is what a Minnesota investor pays in 2026 for long-term gains:
| Federal Long-Term Rate | Minnesota State Rate | Combined Rate | Plus NIIT (if applicable) |
|---|---|---|---|
| 0% | 9.85% | 9.85% | 13.6% |
| 15% | 9.85% | 24.9% | 28.6% |
| 20% | 9.85% | 29.9% | 33.6% |
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 — Minnesota does not have an equivalent.
How Minnesota compares to other states
Minnesota's top rate of 9.85% places it among the highest-taxed states for capital gains. 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%
- Minnesota: 9.85% — total with 15% federal = 24.9%
- 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 Minnesota residents
With a top state rate of 9.85%, minimizing capital gains tax is particularly important in Minnesota. Key strategies:
- Hold over 1 year for long-term federal rates (0/15/20%). Minnesota 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 30% ($5,970) 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 Minnesota 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 Minnesota capital gains tax rules
Tax history and legal basis
Minnesota taxes capital gains as ordinary income using a progressive system with one of the highest top rates in the nation at 9.85%.
Exemptions and special treatment
Minnesota offers a modest capital gains subtraction for gains from the sale of farm property or qualifying small business stock. The exclusion for farm property is limited to gains from sales to beginning farmers. General stock market gains receive no preferential treatment whatsoever.
Filing requirements
File Form M1 (resident). Minnesota starts with federal taxable income. The state requires estimated payments if owing $500+. Filing deadline is April 15. Minnesota is known for aggressive auditing of high-income taxpayers.
Recent changes and legislative updates
Minnesota's 9.85% top rate applies to taxable income over $193,240 (single). Combined with federal rates, Minnesota investors can face a total capital gains rate of 33.65% (20% + 3.8% NIIT + 9.85%). The state briefly considered reducing rates in 2024 but directed surplus funds elsewhere.
Worked example: $50,000 capital gain in Minnesota
Here's exactly what a Minnesota 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 |
| Minnesota state tax (7.85%) | −$3,925 | Applied to the full gain amount |
| Total tax owed | −$11,425 | Federal + state combined |
| You keep | $38,575 | 77.1% of your gain |
After both federal and Minnesota state tax, you keep $38,575 of your original $50,000 gain. The effective combined rate is 22.9%. This is significantly higher than the national average — consider tax-loss harvesting or timing strategies to reduce your bill.
Frequently asked questions — Minnesota
Does Minnesota tax short-term and long-term gains differently?
No — Minnesota 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 a Minnesota tax return if I only have capital gains?
If you have capital gains income and meet Minnesota's filing threshold, you are required to file a Minnesota state income tax return. The threshold is typically similar to the standard deduction amount — check the MN Department of Revenue for the current year's filing requirements.
What if I moved to Minnesota mid-year?
If you moved to Minnesota during the year, you are a part-year resident. Minnesota generally taxes capital gains realized while you were a Minnesota 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.