There is no capital gains tax in Tennessee at the state level. Tennessee does not have an individual income tax, so profits from selling stocks, bonds, real estate, or other assets owe nothing to the state. Your entire bill goes to the federal government, where long-term gains are taxed at 0%, 15%, or 20% depending on your income, and short-term gains are taxed as ordinary income.
Why Tennessee Takes Nothing
Tennessee is one of a handful of states with no individual income tax. Wages, dividends, interest, and capital gains are all treated the same way for individual taxpayers: none of them are taxed by the state.
The state used to tax certain investment income through the Hall Tax, which applied to interest and dividends at rates up to 6%. The legislature began phasing it out in 2016, and it was fully repealed for tax years beginning January 1, 2021.1Tennessee Department of Revenue. HIT-4 – Hall Income Tax Rate Even while it existed, the Hall Tax never reached capital gains. Tennessee residents have never owed state tax on the profit from selling an asset.
Federal Long-Term Capital Gains Rates for 2026
An asset held longer than one year before sale qualifies for long-term treatment. Long-term gains are taxed at 0%, 15%, or 20% based on your total taxable income and filing status. The 2026 thresholds are:2Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026
- 0% rate: taxable income up to $49,450 (single), $98,900 (married filing jointly), or $66,200 (head of household).
- 15% rate: taxable income from $49,451 to $545,500 (single), $98,901 to $613,700 (married filing jointly), or $66,201 to $579,600 (head of household).
- 20% rate: taxable income above $545,500 (single), $613,700 (married filing jointly), or $579,600 (head of household).
For married filing separately, the 0% bracket runs up to $49,450, the 15% bracket runs through $306,850, and 20% applies above that.
Assets held one year or less produce short-term gains, which are taxed at your ordinary income rate. That can climb as high as 37%.3Internal Revenue Service. Topic No. 409, Capital Gains and Losses
One category runs higher than the standard ceiling. Long-term gains on collectibles, including coins, art, antiques, and precious metals, are taxed at a maximum of 28%.3Internal Revenue Service. Topic No. 409, Capital Gains and Losses If your ordinary rate would be lower, you pay the lower rate; if it would be higher, 28% is the cap.
The 3.8% Surcharge for Higher Earners
Higher-income Tennesseans face an additional federal layer. The Net Investment Income Tax adds 3.8% on top of the capital gains rate you already owe. It applies to whichever is smaller: your net investment income, or the amount your modified adjusted gross income exceeds these thresholds:4Internal Revenue Service. Topic No. 559, Net Investment Income Tax
- $200,000 for single or head of household filers.
- $250,000 for married filing jointly.
- $125,000 for married filing separately.
These thresholds are not indexed to inflation, so more filers cross them each year. A married couple selling a rental property for a $400,000 long-term gain and reporting income above $250,000 could see their effective federal rate reach 18.8% or 23.8% once the surtax stacks on the 15% or 20% base.
Selling Your Home
Most Tennessee homeowners who sell their primary residence owe no federal capital gains tax at all. Single filers can exclude up to $250,000 of profit, and married couples filing jointly can exclude up to $500,000.5Office of the Law Revision Counsel. 26 USC 121 – Exclusion of Gain From Sale of Principal Residence
You must have owned the home and lived in it as your primary residence for at least two of the five years before the sale. The two years do not need to be consecutive. You also cannot have claimed the exclusion on another home sale in the previous two years.5Office of the Law Revision Counsel. 26 USC 121 – Exclusion of Gain From Sale of Principal Residence
For a joint return claiming the full $500,000, both spouses must meet the use test, though only one needs to meet the ownership test. A surviving spouse selling within two years of the other spouse’s death can still claim $500,000 while filing as single. Any profit above the exclusion is taxed at the long-term rates listed above.
Using Losses to Cut the Bill
Losses on other investments in the same tax year reduce your gains dollar for dollar. Short-term gains are netted against short-term losses and long-term against long-term, then the two results are combined. If losses exceed gains, you can deduct up to $3,000 of the net loss against ordinary income for the year ($1,500 if married filing separately).3Internal Revenue Service. Topic No. 409, Capital Gains and Losses
Losses beyond that ceiling carry forward indefinitely to future years until used up.6Internal Revenue Service. 2025 Instructions for Schedule D (Form 1040) Since there is no state tax to plan against, the federal carryforward is the main lever Tennessee investors have.
One trap. If you sell at a loss and buy substantially identical stock or securities within 30 days before or after the sale, the wash sale rule disallows the loss for that year.7Internal Revenue Service. Publication 550 (2025), Investment Income and Expenses The disallowed amount is added to the cost basis of the replacement shares, so it is not permanently lost, but you cannot claim it now. The window covers 61 days total: 30 before the sale, the sale date, and 30 after.
When Tennessee Does Reach a Sale
The zero-tax rule covers individuals. Two situations pull the state back in.
Business entities pay tax on their gains. Corporations, LLCs, limited partnerships, and business trusts owe Tennessee’s Franchise and Excise Tax, and capital gains realized inside the entity are part of the calculation.8Tennessee Department of Revenue. Franchise and Excise Tax The excise tax is 6.5% of net earnings, which includes gains realized during the year. The franchise tax is $0.25 per $100 of net worth.9Tennessee Department of Revenue. Due Dates and Tax Rates If your LLC sells a business asset at a profit, the entity owes the 6.5% excise on that gain even though you personally would not owe Tennessee anything on the same transaction outside the LLC.
Real estate sales carry a transfer tax. Tennessee charges $0.37 per $100 of the property’s value or the price paid, whichever is greater, on the recording of a deed.10Tennessee Department of Revenue. Recordation Tax Manual On a $350,000 home, that is about $1,295. State law makes the buyer responsible for paying it, and the county register collects it at recording.11Justia Law. Tennessee Code 67-4-409 – Recordation Tax This tax is based on value, not profit, so it applies even when the seller loses money on the sale. It is a transaction cost, not a capital gains tax.