How Much Is Capital Gains Tax in TN?

Capital gains refer to the profit realized from selling an asset, such as stocks, bonds, real estate, or other investments. These profits often have tax implications, which vary depending on the type of asset sold, how long it was held, and the taxpayer’s overall income. Understanding how capital gains are taxed is an important part of personal financial planning.

Capital Gains Tax in Tennessee

Tennessee does not impose a state-level capital gains tax on individuals. Residents of Tennessee do not pay state taxes on profits earned from the sale of assets like stocks, bonds, or real estate. The state also does not levy a general state income tax on wages and salaries.

Historically, Tennessee did have the Hall income tax, which applied to interest and dividend income. This tax was fully repealed as of January 1, 2021. The repeal solidified Tennessee’s position as a state without a broad-based individual income tax, including on capital gains.

Understanding Federal Capital Gains Tax

Even though Tennessee does not have its own capital gains tax, federal capital gains tax still applies to all U.S. taxpayers, including Tennessee residents. The federal government categorizes capital gains into two main types based on the asset’s holding period. Profits from assets held for one year or less are considered short-term capital gains, while those held for more than one year are long-term capital gains.

Short-term capital gains are taxed as ordinary income, meaning they are subject to the same federal income tax rates as wages and salaries, which can range from 10% to 37%. Long-term capital gains, however, typically benefit from preferential tax rates. These rates are 0%, 15%, or 20%, depending on the taxpayer’s taxable income and filing status. For instance, in 2025, individual filers with taxable income up to $48,350 generally pay 0% on long-term capital gains, while those with higher incomes pay 15% or 20%. An additional 3.8% Net Investment Income Tax (NIIT) may also apply to high-income earners.

Reporting Capital Gains for Tax Purposes

Taxpayers must report capital gains on their federal income tax returns. The primary Internal Revenue Service (IRS) forms used for this purpose are Form 8949, Sales and Other Dispositions of Capital Assets, and Schedule D, Capital Gains and Losses. Form 8949 is used to list the details of each capital asset transaction.

To complete Form 8949, taxpayers need specific information for each asset sold. This includes a description of the property, the date it was acquired, the date it was sold, the sales price, and its cost basis. The form separates transactions into short-term and long-term categories. After detailing individual transactions on Form 8949, the totals for short-term and long-term gains or losses are then transferred to Schedule D. Schedule D summarizes these amounts and calculates the overall net capital gain or loss, which is then reported on the main Form 1040.