Virginia capital gains tax is charged at the same rates as ordinary income, from 2% to 5.75%, with no preferential rate for long-term holdings. Because the top 5.75% bracket starts at just $17,000 of taxable income, almost every dollar of profit from selling stocks, real estate, or other investments ends up taxed at that top rate once your other income is factored in.
How Much You Actually Pay
Virginia uses four progressive brackets that apply to all income, including capital gains:1Virginia Department of Taxation. Tax Rate Schedule Tax Table
- 2% on the first $3,000
- 3% on income from $3,001 to $5,000
- 5% on income from $5,001 to $17,000
- 5.75% on everything above $17,000
These brackets are set by statute and haven’t changed in years. If you already earn more than $17,000 in wages or other income and then sell an asset for a $50,000 profit, the entire gain lands in the top bracket. That produces a Virginia tax bill of $2,875 on the gain alone.
The calculation starts with your federal adjusted gross income. Whatever capital gains figure appears on your federal return flows into your Virginia return as ordinary income.2Virginia Department of Taxation. Subtractions Virginia conforms to the federal Internal Revenue Code for definitions of capital gains, cost basis, and most exclusions, so the federal treatment of a gain generally carries over without adjustment.
Short-Term vs. Long-Term
Federal law taxes long-term gains (assets held more than a year) at preferential rates of 0%, 15%, or 20%, and short-term gains at ordinary rates. Virginia ignores that distinction. Both categories are added to your total income and taxed at the same progressive rates.2Virginia Department of Taxation. Subtractions
The holding period still matters for your federal bill and for a couple of Virginia-specific provisions, but the Virginia rate on your gain is the same either way.
What Reduces the Bill
Because Virginia starts with federal adjusted gross income, most federal exclusions and deferrals cut your Virginia tax automatically. A gain that never appears on the federal return never appears on the Virginia return either.
Selling Your Home
If you sell your primary residence after living in it for at least two of the five years before the sale, you can exclude up to $250,000 of profit from income, or $500,000 if married filing jointly. Virginia conforms to this exclusion, so the excluded gain never enters your Virginia return.3Virginia Tax. Rulings of the Tax Commissioner 09-110 This is the largest capital gains break most people ever use.
Inherited Property
Inherited assets get a stepped-up basis, meaning the cost basis resets to fair market value on the date the previous owner died.4Office of the Law Revision Counsel. 26 U.S. Code 1014 – Basis of Property Acquired From a Decedent Any appreciation during the deceased person’s lifetime is never taxed. Because Virginia starts from federal AGI, that step-up flows through automatically. Inherited property is also automatically treated as long-term regardless of when you sell it.5Office of the Law Revision Counsel. 26 U.S. Code 1223 – Holding Period of Property
Like-Kind Exchanges
Selling investment or business real estate and reinvesting the proceeds in similar property through a properly structured Section 1031 exchange defers the gain entirely. The timing is strict: 45 days to identify replacement properties, 180 days to close. You must use a qualified intermediary, and that person cannot be anyone who has served as your broker, accountant, or attorney within the prior two years.6Internal Revenue Service. Like-Kind Exchanges Under IRC Section 1031 Personal residences and vacation homes don’t qualify. Virginia follows the federal deferral.
Qualified Small Business Stock
Under federal Section 1202, gains from selling stock in a qualified small business can be partially or fully excluded if you held the stock for at least five years and the company met the requirements when the stock was issued. For stock issued before July 5, 2025, a 100% exclusion is available for gains up to the greater of $10 million or ten times your basis. The exclusion happens on the federal return, so qualifying gains escape Virginia tax too.
Virginia’s Qualified Business Investment Subtraction
Virginia offers a state-level subtraction for long-term capital gains and carried interest tied to investments in qualified small businesses with a principal office in Virginia and less than $3 million in annual revenue. The catch: it only applies to investments made between April 1, 2010, and June 30, 2020.7Virginia Code Commission. Virginia Code 58.1-322.02 If you made a qualifying investment during that window and are realizing gains from it now, you can still claim the subtraction on Schedule ADJ. New investments no longer qualify.
Using Losses to Offset Gains
Losses from selling investments below your basis reduce your taxable capital gains dollar for dollar. Sell one stock for a $10,000 profit and another for a $6,000 loss in the same year, and you report $4,000 in net gains. The netting happens on the federal return before your income reaches Virginia, so it cuts your Virginia bill automatically.
When losses exceed gains, you can deduct up to $3,000 of the excess against other income ($1,500 if married filing separately), and any remainder carries forward indefinitely.8Internal Revenue Service. Topic No. 409, Capital Gains and Losses
Watch the wash sale rule. If you sell a security at a loss and buy the same or a substantially identical security within 30 days before or after the sale, the loss is disallowed. It gets added to the basis of the replacement instead, deferring the benefit until you sell that replacement.9Internal Revenue Service. Case Study 1: Wash Sales Selling a losing fund on December 20 and buying it back on January 5 triggers it. That is where year-end tax-loss harvesting most often goes wrong.
The Combined Federal and State Bite
Virginia’s 5.75% is only part of what a higher-income seller pays. On top of federal capital gains tax, a 3.8% federal Net Investment Income Tax applies to the lesser of your net investment income or the amount by which your modified adjusted gross income exceeds these thresholds:10Internal Revenue Service. Topic No. 559, Net Investment Income Tax
- $250,000 for married couples filing jointly
- $200,000 for single filers or heads of household
- $125,000 for married individuals filing separately
These thresholds are not adjusted for inflation, so they catch more taxpayers each year. Gains excluded under the primary residence rule don’t count toward the calculation, but most other capital gains do, including gains from stocks, bonds, mutual funds, rental property, and passive partnership interests.11Internal Revenue Service. Questions and Answers on the Net Investment Income Tax
Stack it all together and a high-income Virginia seller can face a combined rate approaching 29.55% on long-term gains: 20% federal, 3.8% NIIT, and 5.75% Virginia.
Estimated Payments After a Big Sale
A significant gain mid-year can create a surprise tax bill and a penalty on top of it. Virginia requires estimated payments through Form 760ES if your state tax liability after withholding and credits will exceed $150.12Virginia Department of Taxation. Individual Estimated Tax Payments Quarterly due dates are May 1, June 15, September 15, and January 15 of the following year.
To avoid the penalty, pay at least 100% of your prior year’s Virginia tax across the four installments, or at least 90% of your current year’s liability.12Virginia Department of Taxation. Individual Estimated Tax Payments No penalty applies if your total underpayment for the year is $150 or less. The federal system runs parallel rules, though anyone with prior-year AGI above $150,000 must pay 110% of last year’s federal tax to hit the federal safe harbor.13Internal Revenue Service. Underpayment of Estimated Tax by Individuals Penalty
If you sell an asset in, say, July, run the numbers before the September 15 due date and either bump up withholding or send in an estimated payment for the remaining quarters.
Get Your Cost Basis Right
The most common way people overpay Virginia capital gains tax is by understating basis. Basis isn’t only the purchase price. For real estate, it includes the cost of capital improvements over the years, such as a new roof, a kitchen renovation, or added square footage, minus any depreciation or casualty losses you claimed.14Internal Revenue Service. Property (Basis, Sale of Home, etc.) 3 If you financed the purchase, the full purchase price counts, not just your down payment. For stocks, reinvested dividends raise your basis in the shares.
Understating basis inflates your reported gain and means paying more Virginia tax than you actually owe. Keep records of purchase prices, improvement costs, and reinvested income while you hold the asset, not scrambling for them at tax time.