Does Ohio Charge a Capital Gains Tax?

Ohio does not have a separate capital gains tax; instead, it taxes capital gains as regular income. This means the profit from selling an asset is subject to the state’s standard income tax rates. A capital gain is the positive difference between an asset’s selling price and its original purchase price, or basis, for items like stocks, bonds, and real estate. The state’s approach differs from the federal government’s, which often taxes long-term gains at lower rates.

Ohio’s Taxation of Capital Gains

Ohio uses your Federal Adjusted Gross Income (AGI) as the starting point for calculating state income tax, meaning any capital gains on your federal return are carried over to your Ohio return. Unlike the federal system, Ohio makes no distinction between short-term gains from assets held one year or less and long-term gains from assets held more than one year. Both types are combined with your other earnings and taxed as ordinary income under Ohio’s progressive income tax brackets.

This method can result in a different tax outcome compared to your federal return. For 2025, Ohio’s income tax rates are 2.75% on income between $26,051 and $100,000 and 3.5% on income over $100,000, with no tax on income up to $26,050. Because the gains increase your total income, they could push you into a higher state tax bracket.

The Ohio Capital Gains Deduction

For taxable years beginning in or after 2026, Ohio offers a tax benefit known as the Ohio Capital Gains Deduction. This provision allows taxpayers to subtract certain qualifying capital gains from their Ohio income, reducing their state tax liability. To be eligible, the gain must originate from the sale of equity or debt in an Ohio-based business.

This means that gains from selling stock in a publicly traded company, like a major national corporation, would not qualify. The business you invest in must have its headquarters or a significant portion of its operations within Ohio. To claim the deduction, the taxpayer selling the interest must meet certain conditions, requiring either having “materially participated” in the business’s activities for the five consecutive years before the sale or having made a venture capital investment of at least one million dollars in the business.

Reporting Capital Gains on Your Ohio Tax Return

The procedure for reporting capital gains on your Ohio tax return is linked to your federal filing. Your Federal Adjusted Gross Income (AGI), which includes all your realized capital gains, is the initial figure you enter on your Ohio individual income tax return, Form IT 1040. This establishes the base income for state-specific adjustments.

If you have gains eligible for the Ohio Capital Gains Deduction, you must complete Ohio Schedule A, which is used for reporting various income adjustments. On this schedule, you will enter the amount of your qualifying gains on the specific line for the deduction. After calculating your total state adjustments on Schedule A, that total is transferred to the Form IT 1040. This amount reduces your Federal AGI to arrive at your Ohio Adjusted Gross Income, and the state income tax is calculated based on this lower figure.