How Much Is Capital Gains Tax in Arkansas?

When you sell an asset like stocks, real estate, or a business for more than you paid for it, the resulting profit is a capital gain. This gain is a form of income subject to taxation by both the federal government and the state of Arkansas. While federal tax laws provide a framework, Arkansas has its own regulations for how these profits are taxed. Understanding these state-specific rules, which depend heavily on how long you owned the asset, is important for calculating your tax liability.

Determining Your Arkansas Capital Gain

To determine your capital gain, use the formula: selling price minus cost basis equals capital gain or loss. The cost basis includes the purchase price and other costs associated with buying, holding, and selling the asset, such as commissions, legal fees, and significant improvements. For example, if you purchased a property for $200,000, paid $5,000 in closing costs, and invested $25,000 in a new roof, your cost basis would be $230,000.

The gain must be categorized based on the holding period. A short-term capital gain results from selling an asset owned for one year or less. A long-term capital gain comes from the sale of an asset held for more than one year. Arkansas law treats these two types of gains differently.

The Arkansas Capital Gains Deduction

Arkansas provides a tax benefit that applies exclusively to long-term capital gains. The state allows taxpayers to deduct 50% of their net long-term capital gains from their state income. “Net” long-term capital gains are calculated by subtracting any long-term capital losses from your total long-term capital gains for the year.

For example, if a taxpayer sells land owned for five years for a $40,000 long-term capital gain and sells stocks held for three years at a $4,000 loss, their net long-term capital gain is $36,000. Applying the Arkansas deduction, the taxpayer can exclude 50% of this amount, or $18,000, from their taxable income.

This 50% deduction is narrowly targeted and does not apply to short-term capital gains. Profits from assets held for one year or less are fully taxable and do not benefit from this reduction. This policy provides an incentive for investors to hold assets for more than a year.

Calculating the Tax Liability

The remaining taxable portion of a capital gain is not taxed at a special, flat rate. Instead, Arkansas requires you to add this amount to your other sources of income for the year, such as wages, salaries, and business income. The combined total is then taxed according to the state’s ordinary progressive income tax brackets.

Arkansas’s income tax system is progressive, meaning the tax rate increases as income rises. For the 2025 tax year, the top individual income tax rate is 3.9%. For example, if a taxpayer has a $60,000 salary and a taxable long-term capital gain of $18,000, their total Arkansas taxable income becomes $78,000.

This total income is then subject to the state’s tax brackets, with income taxed at progressively higher rates up to the 3.9% maximum. This method differs from the federal system, where long-term capital gains are taxed at preferential rates of 0%, 15%, or 20%, separate from ordinary income tax brackets.

Reporting on Your Arkansas Tax Return

All capital gains transactions for the year must be detailed on the Arkansas Capital Gains Schedule, designated as Schedule D. On this form, you separate your short-term and long-term gains and losses. The schedule guides you through calculating your net gain or loss for each category.

On Schedule D, you report your total long-term capital gains and apply the 50% capital gains deduction. The resulting taxable capital gain is then transferred from Schedule D to the main Arkansas Resident Income Tax Return, Form AR1000F. This amount is then combined with your other forms of income.

You should complete the federal Schedule D first, as information like cost basis and sale proceeds is used to complete the Arkansas Schedule D. The state form requires information from the federal return. Accurate filing is needed to substantiate the capital gains deduction if your return is reviewed by the Arkansas Department of Finance and Administration.