The Indiana capital gains tax is the state’s flat individual income tax applied to your net capital gain, set at 2.95% for tax year 2026. Indiana does not offer a lower rate for long-term gains, and your county income tax and federal capital gains tax both apply on top of the state amount.
How Indiana Calculates the Gain
Indiana’s income tax starts with your federal adjusted gross income.1Indiana General Assembly. Indiana Code 6-3-1-3.5 – Adjusted Gross Income Whatever net capital gain or loss you report on federal Schedule D flows into line 7 of your Form 1040, into your federal AGI, and then straight onto your Indiana return. The state does not recalculate the gain itself.
Federal law taxes long-term gains (assets held more than one year) at preferential rates and short-term gains as ordinary income.2Office of the Law Revision Counsel. 26 USC 1223 – Holding Period of Property Indiana ignores that split. A gain is a gain. Whether you held the stock for six months or six years, the state rate is the same.3Indiana General Assembly. Indiana Code 6-3-2-2 – Adjusted Gross Income Derived From Sources Within Indiana
The State Rate for 2026
Indiana’s flat individual income tax rate for taxable years beginning in 2026 is 2.95%.4Indiana Department of Revenue. Rates, Fees and Penalties It applies to wages, business income, and capital gains identically. There is no preferential rate for investment income at the state level. The rate is scheduled to drop to 2.90% for tax years beginning in 2027.5Indiana General Assembly. Indiana Code 6-3-2-1 – Imposition of Tax; Tax Rate; Calculation
Put a number on it. A $100,000 net capital gain produces $2,950 in Indiana state tax before any deductions or the county tax layer.
Your County Tax Comes on Top
Every Indiana county levies its own income tax, and it applies to the same income base as the state tax. Rates vary from county to county, so two residents with identical gains can owe noticeably different amounts depending on where they live. Check the Indiana Department of Local Government Finance’s published rate schedule for your county’s current rate, and add it to the 2.95% state rate to see your true state-and-local burden.
Federal Tax Stacks on Top of Indiana
The state tax is one piece of the total bill. Federally, short-term gains are taxed as ordinary income at rates up to 37%, and long-term gains are taxed at 0%, 15%, or 20% depending on your taxable income.6Internal Revenue Service. Topic No. 409, Capital Gains and Losses
Higher earners also face the 3.8% Net Investment Income Tax on the lesser of net investment income or the amount by which modified AGI exceeds $200,000 for single filers or $250,000 for married filing jointly.7Internal Revenue Service. Topic No. 559, Net Investment Income Tax Indiana has no equivalent surtax, but the NIIT stacks on top of what you owe Indiana.
A married Indiana couple with $300,000 of income and a $100,000 long-term gain could owe 2.95% to Indiana, their county rate, 15% or 20% federal on the long-term gain, and 3.8% NIIT on part of it. Combined effective rates above 20% are realistic once every layer is added.
Exclusions and Deferrals That Reduce What You Owe
Because Indiana starts with federal AGI, most federal exclusions and deferrals automatically reduce the state tax as well. If the gain never enters your federal AGI, Indiana never sees it.
Sale of a Primary Residence
You can exclude up to $250,000 of gain on the sale of your main home, or $500,000 for a married couple filing jointly, if you owned and used the home as your principal residence for at least two of the five years before the sale.8Internal Revenue Service. Topic No. 701, Sale of Your Home The excluded gain stays out of federal AGI and, therefore, out of Indiana’s calculation.
Qualified Small Business Stock
Indiana conforms to the federal Section 1202 exclusion for Qualified Small Business Stock. Stock in an eligible C corporation, acquired at original issue when the company had $50 million or less in gross assets and held for at least five years, can qualify for up to 100% exclusion of the gain. The per-issuer cap is $10 million for stock acquired on or before the statutory dates and $15 million for stock acquired afterward.9Office of the Law Revision Counsel. 26 USC 1202 – Partial Exclusion for Gain From Certain Small Business Stock If any portion of the excluded gain still requires an Indiana adjustment, claim the deduction on Schedule 2 of Form IT-40.
Stepped-Up Basis on Inherited Assets
When you inherit an asset, your cost basis is generally the fair market value on the date of death rather than what the decedent paid.10Internal Revenue Service. Gifts and Inheritances That step-up can wipe out most or all of the taxable gain when you later sell. Indiana uses the same basis as the federal return, so the benefit carries through.
1031 Exchanges of Real Estate
A Section 1031 like-kind exchange lets you defer gain on investment or business real estate by rolling the proceeds into similar property. The deferral reduces federal AGI and Indiana follows. The gain is postponed, not forgiven. When you sell the replacement property outside of another exchange, the accumulated gain becomes taxable.
Capital Losses and Wash Sales
If losses exceed gains in a given year, you can deduct up to $3,000 of the net loss against other income on your federal return ($1,500 if married filing separately), with the remainder carrying forward.6Internal Revenue Service. Topic No. 409, Capital Gains and Losses That $3,000 reduces federal AGI, and by extension your Indiana taxable income.
The wash sale rule blocks losses when you buy a substantially identical security within 30 days before or after selling at a loss.11Internal Revenue Service. Case Study 1 – Wash Sales The disallowed loss shifts into the basis of the replacement shares. Because the loss never lowered federal AGI, it never lowers Indiana income either.
Estimated Payments on a Large Gain
A big gain during the year can create a tax bill you are expected to pay in installments, not in April. Both Indiana and the IRS charge penalties for underpayment.
You must make Indiana estimated payments if your combined unpaid state and county liability for the year is $1,000 or more and taxes are not being withheld on the income.12Indiana Department of Revenue. Payment of Indiana Estimated Tax by Individuals Installments are due April 15, June 15, September 15, and January 15. Each payment covers both the state and county portions.
Indiana’s underpayment penalty is 10%, calculated quarter by quarter. You avoid it by paying at least 90% of the current year’s tax or 100% of the prior year’s tax through the four installments; the prior-year figure rises to 110% if your federal AGI exceeded $150,000.12Indiana Department of Revenue. Payment of Indiana Estimated Tax by Individuals
The IRS follows the same quarterly schedule and similar safe harbors: no penalty if your total tax due is under $1,000, or if you paid at least 90% of the current year’s tax or 100% of the prior year’s (110% if prior-year AGI exceeded $150,000).13Internal Revenue Service. Underpayment of Estimated Tax by Individuals Penalty If the gain hits late in the year, the annualized income installment method lets you weight payments toward later quarters instead of taking penalties on the earlier ones.14Internal Revenue Service. 2026 Form 1040-ES – Estimated Tax for Individuals
Reporting the Gain on Your Indiana Return
Federal Schedule D produces your net capital gain, which lands in your federal AGI.15Internal Revenue Service. Schedule D (Form 1040) Full-year Indiana residents carry that AGI onto Form IT-40. State-specific adjustments, including any QSBS-related deduction that must be claimed at the state level, go on Schedule 2 as an “Other Deduction,” which reduces Indiana taxable income before the 2.95% rate is applied. Indiana’s filing deadline is April 15, the same day as the federal return.16Indiana Department of Revenue. Filing Deadlines
If You Are a Nonresident
Indiana can only tax nonresidents on income from Indiana sources.17Legal Information Institute. 45 IAC 3.1-1-25 – Tax Liability of Nonresident Real property located in Indiana is Indiana-source, so a nonresident who sells an Indiana rental house owes Indiana tax on the gain.
Intangibles work differently. Gains from stocks, bonds, and similar intangible property are allocated to the seller’s state of commercial domicile, not to Indiana.18Legal Information Institute. 45 IAC 3.1-1-58 – Allocation of Capital Gains and Losses A Florida resident selling stock in an Indiana-headquartered company owes Indiana nothing on that gain. Nonresidents who do owe Indiana tax file Form IT-40PNR and report only their Indiana-sourced income.