Indiana Capital Gains Tax: Rates and Deductions
Learn how Indiana's capital gains tax begins with your federal return, applies a flat state rate, and offers a unique deduction for certain local assets.
A capital gain is the profit from selling an asset, such as stocks, bonds, or real estate. Gains are categorized based on how long you owned the asset before selling it. Short-term gains come from assets held for one year or less, while long-term gains are from assets held for more than a year. Indiana’s tax treatment of these gains differs from federal rules.
Indiana’s Taxation of Capital Gains
Indiana treats all net capital gains as regular income, adding these profits to your other earnings, like wages. Unlike the federal system, the state makes no distinction between short-term and long-term gains. All gains are taxed at Indiana’s single flat income tax rate.
For the 2025 tax year, the flat tax rate is 3.0%. Under current law, this rate is scheduled to decrease to 2.95% in 2026 and then to 2.9% for 2027 and subsequent years.
In addition to the state tax, capital gains are subject to local income taxes determined by your county of residence or work. These rates vary by county, so your total tax is the sum of the state rate and your specific county’s tax rate.
Calculating and Reporting Your Indiana Capital Gain
Indiana’s calculation for capital gains begins with your Federal Adjusted Gross Income (AGI). This figure from your federal return already includes your net capital gain or loss. Because Indiana uses federal AGI as its starting point on Form IT-40, all federal calculations and limitations flow through to your state return.
The federal limitation on capital losses also carries over to your Indiana return. If your capital losses exceed your gains, you can deduct up to $3,000 of the excess loss against other income. Any remaining loss above this limit is carried forward to future tax years, and this deduction is automatically factored into your state income via your AGI.
Paying the Tax
If you owe tax on a capital gain, you can make estimated tax payments during the year. This helps avoid a large bill and potential underpayment penalties when filing your annual return, especially if the gain is large.
Alternatively, you can pay the full amount owed when you file your Form IT-40 by the annual tax deadline. Payments can be made electronically, by mail, or through tax preparation software.