The Pennsylvania capital gains tax is a flat 3.07%, applied to every dollar of gain as ordinary personal income.1Department of Revenue | Commonwealth of Pennsylvania. Personal Income Tax Rates There is no separate bracket for investment income, no lower rate for assets you held more than a year, and no higher rate if your total income is large. A stock you flipped in six months and a rental you owned for a decade are taxed at the same rate on the same line of your return.
The Rate and What It Applies To
The 3.07% rate has been in place since 2004 and still applies for the 2026 tax year. Pennsylvania treats gains from selling property as one of eight classes of taxable income under its Personal Income Tax, and the flat rate hits every class the same way.
One piece of good news: capital gains are not subject to Pennsylvania’s local earned income taxes. The local EIT return instructions list capital gains as non-taxable income and bar you from reporting them there.2DCED. Taxpayer Annual Local Earned Income Tax Return Instructions Your municipality and school district collect nothing on an investment sale. The state’s 3.07% is the full state and local bill.
Working Out Your Taxable Gain
Your gain is the sale price minus your cost basis, which is generally what you paid plus improvements and selling costs. Pennsylvania mostly tracks federal basis concepts, but a few differences can swing the number significantly.
Inherited Property
Inherited property generally gets a stepped-up basis equal to the fair market value on the date the previous owner died. If a parent paid $80,000 for a house that was worth $300,000 at death, your Pennsylvania basis is $300,000.3pa.gov. Pennsylvania Personal Income Tax Guide – Net Gains (Losses) From the Sale, Exchange, or Disposition of Property
Pennsylvania departs sharply from federal rules in one situation that trips up surviving spouses. The step-up does not apply to property you receive as a surviving joint tenant with right of survivorship, or as a surviving spouse for property held as tenants by the entireties.3pa.gov. Pennsylvania Personal Income Tax Guide – Net Gains (Losses) From the Sale, Exchange, or Disposition of Property If you and your spouse owned the home jointly and your spouse dies, your federal basis steps up but your Pennsylvania basis stays at the original purchase price. When you later sell, the Pennsylvania gain can be far larger than the federal gain.
Gifted Property
Property you receive as a gift takes the donor’s basis. If an uncle bought stock for $5,000 and gave it to you when it was worth $25,000, your Pennsylvania basis is $5,000.4Cornell Law School. 61 Pa Code 103.13 – Net Gains or Income From Disposition of Property The appreciation during the donor’s ownership becomes your gain when you sell.
Property Owned Before June 1, 1971
Pennsylvania’s personal income tax took effect on June 1, 1971, and the state only taxes gain that accrued after that date. For property acquired before the cutoff, your taxable gain is prorated by the fraction of your holding period that falls after June 1, 1971, measured in full calendar months.4Cornell Law School. 61 Pa Code 103.13 – Net Gains or Income From Disposition of Property This mostly matters for long-held real estate and family land, but it can cut the taxable number meaningfully when it applies.
Selling Your Primary Home
Pennsylvania’s exclusion for the sale of a principal residence is more generous than the federal one. If you owned and used the home as your principal residence, the entire gain is generally exempt from Pennsylvania personal income tax, with no dollar cap.5Department of Revenue | Commonwealth of Pennsylvania. Net Gains (Losses) From the Sale, Exchange, or Disposition of Property The federal exclusion stops at $250,000 of gain for a single filer and $500,000 for joint filers; Pennsylvania does not impose a ceiling. A $600,000 gain can be fully excluded at the state level even though a chunk of it is taxable federally.
The exclusion has one real limit. Gain attributable to any business or rental use of the property is taxable. The worksheet with PA Schedule 19 handles the split between residential and non-residential use. If the whole gain qualifies for the exclusion, you do not need to file PA Schedule D for that sale.
Why Losses Hurt Less Than You Think
Pennsylvania’s loss rules are much tighter than the federal rules, and planning around them matters.
- Losses can only offset gains in the same income class. A stock loss can offset a stock gain, but it cannot reduce your wages, rental income, or any other class of income.3pa.gov. Pennsylvania Personal Income Tax Guide – Net Gains (Losses) From the Sale, Exchange, or Disposition of Property
- There is no loss carryover. If losses exceed gains for the year, the excess disappears; Pennsylvania does not let you carry it to a future year.
- On a joint return, one spouse’s loss cannot offset the other spouse’s gain.
- Losses on personal-use property are ignored. Selling a car or furniture at a loss produces no tax benefit; only property acquired as an investment or for profit counts.5Department of Revenue | Commonwealth of Pennsylvania. Net Gains (Losses) From the Sale, Exchange, or Disposition of Property
The practical takeaway is about timing. If you intend to sell both a winner and a loser, closing both in the same calendar year lets the loss shrink the gain. Push the loss into the next year and the offset is gone for good.
If You Live Out of State
Non-residents who sell property located in Pennsylvania owe the same 3.07% on the gain, because it counts as Pennsylvania-source income.6Cornell Law School. 61 Pa Code 109.1 – Taxable Income of Nonresident Individuals This usually comes up with Pennsylvania real estate, rental property, or a business with physical assets in the state.
Payors are required to withhold 3.07% from non-wage Pennsylvania-source income paid to non-residents, including real estate sale proceeds, though withholding is optional when total payments to the non-resident are under $5,000 for the year.7Department of Revenue | Commonwealth of Pennsylvania. Nonresident Withholding The withholding is a prepayment, not the final tax; you still file a Pennsylvania return to settle up.
Estimated Payments After a Big Sale
No one withholds Pennsylvania tax from a stock sale or a real estate closing, so a sizeable gain mid-year can leave you both owing a lump sum in April and facing an underpayment penalty. For 2026, Pennsylvania requires quarterly estimated payments if you expect to owe at least $430 after withholding and credits, and the trigger on the income side is $14,000 of income not subject to employer withholding.8pa.gov. 2026 Instructions for Estimating PA Personal Income Tax – For Individuals Only
If a sale produces a gain large enough to cross those thresholds, the estimated payment is due for the quarter in which you received the income. The penalty runs as interest on each underpaid installment for the days it stays unpaid, through the filing deadline, and it applies even if your final return shows an overpayment.
Filing on PA Schedule D
Taxable gains and losses go on PA Schedule D, “Sale, Exchange, or Disposition of Property,” filed with your PA-40 Personal Income Tax Return.9PA.gov. 2025 PA Schedule D – Sale, Exchange, or Disposition of Property For each transaction you report the sale price, your cost basis, and the acquisition and sale dates. The net total flows to Line 5 of the PA-40.
Use Pennsylvania’s own basis and gain rules, not the federal numbers from your federal Schedule D; the two can differ, especially on inherited property passing to a surviving spouse or joint tenant. Schedule D must be filed even if your only transaction produced a loss.