Idaho State Capital Gains Tax: Flat Rate and 60% Deduction

Idaho capital gains tax is Idaho’s flat 5.3% individual income tax applied to your gain, because the state does not use a separate capital gains rate. What makes Idaho different is a deduction under Idaho Code 63-3022H that erases 60% of the gain on qualifying Idaho property, dropping the effective state rate on those sales to about 2.12%. The deduction only reaches specific asset types with an Idaho location, so selling Idaho farmland looks very different on your return than selling stock.

Idaho’s Flat Rate on Capital Gains

Capital gains get added to your other income and taxed at Idaho’s flat 5.3% rate on income above the zero-bracket amount, which is $4,811 for single filers and $9,622 for married filing jointly in 2025.¹ Idaho starts its calculation from your federal adjusted gross income and then layers on state-specific adjustments.² There is no separate long-term versus short-term rate at the state level, and no higher bracket for large gains.

Because Idaho piggybacks on federal AGI, anything the federal rules exclude from income (like the home sale exclusion discussed below) never reaches your Idaho return. Anything the federal rules tax, Idaho picks up and then applies its own deduction on top.

The 60% Deduction for Qualifying Idaho Property

The core state-level break is the Idaho capital gains deduction. Under Idaho Code 63-3022H, you can deduct up to 60% of the net capital gain from the sale of qualifying Idaho property.³ Only 40% of an eligible gain gets taxed, so the effective state rate on a qualifying sale is roughly 2.12%.

The property must have had Idaho situs (physical location in Idaho) at the time of sale and fall into one of these categories:⁴

Real property (land, buildings, conservation easements, grazing permits, and depreciable real property) held at least 12 months.
Tangible personal property used in a revenue-producing enterprise in Idaho for at least 12 months. The statute’s list of qualifying enterprises includes manufacturing, processing, warehousing, wholesale distribution, feedlot operations, and research facilities.
Cattle and horses held for breeding, draft, dairy, or sporting purposes for at least 24 months in Idaho.
Other breeding livestock held at least 12 months in Idaho.
Timber grown in Idaho and held at least 24 months.
Certain partnership interests held at least 12 months, limited to the share of gain traceable to qualified Idaho real property held by the partnership.⁵

What the Deduction Does Not Cover

Stocks, bonds, mutual fund shares, and interests in LLCs or S corporations are intangible property and are excluded, no matter how long you held them or whether the company operates in Idaho.³ Real or tangible personal property located outside Idaho is also out. So are gains that the federal Internal Revenue Code treats as ordinary income, such as depreciation recapture.⁴

Mutual fund capital gain distributions are a common surprise. You owe tax on them even if you reinvested every dollar, and because fund shares are intangible, they get none of Idaho’s 60% deduction.⁶

If your portfolio is mostly stocks and funds, the Idaho deduction does nothing for you. It is designed to favor investment in Idaho’s physical economy: agriculture, timber, and real estate.

Calculating What You Owe Idaho

Start with federal basics. Your gain is the sale price minus your adjusted basis (what you paid, plus improvements, minus depreciation claimed). Then work the Idaho side:

Separate gains from qualifying Idaho property from everything else. Only the qualifying portion gets the 60% deduction.
Apply capital loss carryovers against the qualifying gain first. Only losses from qualifying property can offset qualifying gains for deduction purposes.⁵
Multiply the net qualifying gain by 60%. That is your deduction, capped at your total capital gain net income reported on the federal return.⁴
Tax the remainder (the 40% of qualifying gains plus 100% of non-qualifying gains) at 5.3%.

A Worked Example

Say you sell Idaho farmland for a $200,000 long-term gain after holding it three years. The deduction is $200,000 × 60% = $120,000. Only $80,000 flows into Idaho taxable income. At 5.3%, you owe about $4,240 to Idaho. Without the deduction, the bill would be $10,600. Sell $50,000 of stock the same year and the stock gain gets no deduction: $50,000 × 5.3% adds $2,650.

Federal Tax on the Same Gain

Idaho is only part of the bill. Long-term federal rates for 2026 depend on your total taxable income:⁶

0% for single filers up to $49,450 and married filing jointly up to $98,900.
15% for single filers from $49,451 to $545,500 and married filing jointly from $98,901 to $613,700.
20% above those thresholds.

Short-term gains on assets held one year or less are taxed at your ordinary federal rate, up to 37%. A 3.8% net investment income tax also applies to capital gains when modified adjusted gross income exceeds $200,000 single or $250,000 married filing jointly, so a top-bracket seller can face a combined 23.8% federal rate before Idaho’s 5.3% (or 2.12% effective) is added.⁷

Ways to Reduce or Defer the Gain

Selling Your Home

Federal law excludes up to $250,000 of gain on the sale of a primary residence ($500,000 for married couples filing jointly) if you owned and used the home as your main residence for at least two of the five years before the sale.⁸ A surviving spouse who sells within two years of a spouse’s death can still use the $500,000 limit. Because Idaho begins with federal AGI, the excluded gain never appears on your Idaho return. For most home sales, this wipes out capital gains tax entirely at both levels.

1031 Exchange on Investment Real Estate

A Section 1031 like-kind exchange defers capital gains tax when you swap one piece of investment or business real estate for another. Since the Tax Cuts and Jobs Act, 1031 treatment applies only to real property, not equipment or other personal property.⁹ Any cash or non-real-property you receive in the exchange is taxable. Idaho follows the federal deferral, so a clean 1031 pushes both the state and federal tax to a later sale.

Inherited Property

Inherited assets receive a stepped-up basis equal to fair market value on the date of death, which can erase decades of unrealized appreciation. They are also treated as long-term holdings for federal purposes. In community property states, which include Idaho, both halves of community property step up when one spouse dies, not just the deceased spouse’s share. Retirement accounts do not step up; withdrawals from an inherited IRA or 401(k) remain taxable as ordinary income.

Offsetting with Losses

Capital losses offset capital gains dollar for dollar. If your losses exceed your gains, up to $3,000 of the excess can be deducted against ordinary income each year ($1,500 if married filing separately), and the rest carries forward.¹⁰ Because Idaho starts from federal AGI, the same losses reduce your Idaho bill.

Filing, Forms, and Payment

Report capital gains on Idaho Form 40 if you are a full-year resident, or Form 43 if you are a part-year resident or nonresident. To claim the 60% deduction, attach Form CG.⁵ The deadline is April 15 after the tax year, moving to the next business day if that falls on a weekend or holiday.

Keep thorough records: purchase price, sale price, improvement costs, and depreciation. The Idaho State Tax Commission can ask you to prove situs and holding periods for any gain you ran through the 60% deduction.

Idaho does not require individuals to make estimated tax payments, but you can send voluntary payments anytime up to the filing deadline.¹¹ Interest and penalties start accruing on any unpaid balance after the due date, so if you close a large sale mid-year, a voluntary payment before April keeps interest from compounding. Federal rules are stricter: the IRS expects quarterly estimated payments if you will owe $1,000 or more at filing.

Gains Through an S Corp, Partnership, or Trust

If you hold Idaho property inside an S corporation, partnership, trust, or estate, the deduction can still reach you, but only to the extent the gain traces back to the sale of qualifying Idaho property held by the entity.¹² A sale of the partnership interest itself qualifies only to the extent the gain is attributable to qualified Idaho real property the partnership owned, calculated under the fair market value or adjusted basis methods set out in the statute.⁴

1
Idaho State Tax Commission. Individual Income Tax Rate Schedule
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Idaho State Tax Commission. Idaho Conformity and Tax Reform
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Idaho State Tax Commission. Capital Gains
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Idaho State Legislature. Idaho Code 63-3022H – Deduction of Capital Gains
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Idaho State Tax Commission. Form CG – Capital Gains Deduction Instructions
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Fidelity. Understanding Mutual Fund Taxes
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Internal Revenue Service. Topic No. 559, Net Investment Income Tax
8
Office of the Law Revision Counsel. 26 USC 121 – Exclusion of Gain From Sale of Principal Residence
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Internal Revenue Service. Like-Kind Exchanges – Real Estate Tax Tips
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Office of the Law Revision Counsel. 26 USC 1211 – Limitation on Capital Losses
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Idaho State Tax Commission. Avoid a Tax Debt
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Legal Information Institute. Idaho Admin Code r 35.01.01.173 – Idaho Capital Gains Deduction – Pass-Through Entities