The Minnesota capital gains tax is not a separate tax. The state treats capital gains as ordinary income and applies its regular income tax brackets, which run from 5.35% to 9.85%. There is no reduced rate for long-term gains, and taxpayers with more than $1 million in net investment income pay an additional 1% surtax, bringing the top effective rate on gains to 10.85%.1Minnesota House of Representatives. Capital Gains Taxation
No Discount for Holding Long Term
Federally, holding an asset for more than a year unlocks the preferential long-term capital gains rates of 0%, 15%, or 20%. Minnesota does not follow suit. The state recognizes the federal holding-period categories but applies no rate benefit. Stock you held for five years and stock you flipped in three months face the same Minnesota rate once the gain lands in your taxable income.1Minnesota House of Representatives. Capital Gains Taxation
The practical result is that a high-income Minnesotan paying 20% federally on a long-term gain can owe another 9.85% (or 10.85% with the surtax) to the state. Federal planning around the one-year holding line still matters for your federal bill. It does nothing to lower what you owe Minnesota.
2026 Brackets That Will Apply to Your Gain
Your capital gain stacks on top of your wages and other income, and the combined total is run through Minnesota’s four brackets. A large sale can push the top dollars of your income into a bracket you don’t normally hit. For 2026, the thresholds are:2Minnesota Department of Revenue. Income Tax Rates and Brackets
Single filers:
- 5.35% on income up to $33,310
- 6.80% from $33,311 to $109,430
- 7.85% from $109,431 to $203,150
- 9.85% on $203,151 and above
Married filing jointly:
- 5.35% on income up to $48,700
- 6.80% from $48,701 to $193,480
- 7.85% from $193,481 to $337,930
- 9.85% on $337,931 and above
Head of household:
- 5.35% on income up to $41,010
- 6.80% from $41,011 to $164,800
- 7.85% from $164,801 to $270,060
- 9.85% on $270,061 and above
Married filing separately:
- 5.35% on income up to $24,350
- 6.80% from $24,351 to $96,740
- 7.85% from $96,741 to $168,965
- 9.85% on $168,966 and above
Say you’re single, earn $80,000 in wages, and sell stock for a $50,000 gain. Your total taxable income becomes $130,000. The first $33,310 is taxed at 5.35%, the next slice at 6.80%, and the portion above $109,430 crosses into the 7.85% bracket. Without the gain, that top bracket would never have come into play.
The 1% Surtax on Net Investment Income Over $1 Million
Beginning with tax year 2024, Minnesota layers an extra 1% tax on net investment income above $1 million. It applies to individuals, estates, and trusts.3Minnesota Department of Revenue. Net Investment Income Tax (NIIT) Capital gains count as net investment income alongside interest, dividends, rental income, and royalties.
The $1 million threshold is written into statute as a fixed figure and is not indexed for inflation.4Minnesota Office of the Revisor of Statutes. Minnesota Statutes 290.033 – Net Investment Income Tax For taxpayers who cross it, the effective top marginal rate on gains reaches 10.85%. Add the federal 20% long-term rate and the federal 3.8% net investment income tax, and the combined marginal rate on long-term gains can exceed 34%.
Exclusions and Deferrals That Can Shrink the Bill
Primary Residence Sale
Minnesota honors the federal home-sale exclusion. If you owned and lived in your home for at least two of the five years before selling, you can exclude up to $250,000 of gain if single or $500,000 if married filing jointly. Any gain above those limits is taxed at ordinary Minnesota rates.1Minnesota House of Representatives. Capital Gains Taxation
Qualified Small Business Stock
Minnesota conforms to the federal Section 1202 exclusion for qualified small business stock. If you held QSBS from an eligible C corporation for more than five years, the federal exclusion carries over to your state return, with the same per-issuer limits. For stock acquired after September 27, 2010, that can mean a full 100% exclusion.1Minnesota House of Representatives. Capital Gains Taxation
Like-Kind Exchanges
Because Minnesota conforms to the Internal Revenue Code for defining gain and loss, Section 1031 like-kind exchanges defer gain at the state level too. Follow the federal rules and timelines and the deferral applies on your Minnesota return. Note that federal like-kind treatment has been limited to real property since 2018; personal property swaps no longer qualify.
Inherited Property
Inherited assets receive a stepped-up basis equal to the fair market value on the date of the previous owner’s death, and Minnesota follows this rule. If your parents paid $100,000 for a house worth $400,000 when they died, your basis is $400,000. Sell for $405,000 and your taxable gain is $5,000, not $305,000.
What Happens If You Have a Loss
Minnesota follows the federal capital loss rules. When losses exceed gains for the year, you can deduct up to $3,000 of the net loss against other income ($1,500 if married filing separately). Anything beyond that carries forward indefinitely, offsetting future gains or up to $3,000 of ordinary income each year until it’s used up.1Minnesota House of Representatives. Capital Gains Taxation
Pay Estimated Tax on Big Gains
Capital gains aren’t subject to payroll withholding, so a large sale with no estimated payment almost guarantees a penalty. Minnesota requires estimated payments if you expect to owe $500 or more after withholding and refundable credits.5Minnesota Department of Revenue. Estimated Tax
Installments are due April 15, June 15, and September 15 of the tax year, and January 15 of the following year. To avoid the underpayment penalty, your withholding plus estimated payments must equal at least 90% of the current year’s tax or 100% of last year’s (110% if your prior-year adjusted gross income was over $150,000). The penalty runs at 4% of the underpaid amount, prorated by the number of days between the installment date and when you actually pay.
If the sale happens late in the year, after several quarterly deadlines have already passed, the penalty calculation focuses on the January 15 installment rather than retroactively punishing you for quarters when the income didn’t yet exist. Even so, paying as soon as possible after a large gain is the safer move.
How to Report It on Your Return
Reporting starts with federal Schedule D, which gathers your transactions from Form 8949 and produces your net capital gain or loss.6Internal Revenue Service. Topic no. 409, Capital Gains and Losses That number flows into your federal adjusted gross income, which carries over to Minnesota Form M1.
Most taxpayers with routine stock sales will find their federal and Minnesota gain are identical and won’t need any additional schedules. If a basis difference or other nonconformity item applies, you report the adjustment on Schedule M1NC and transfer the result to Form M1.7Minnesota Department of Revenue. 2025 Federal Nonconformity for Income Tax Non-residents and part-year residents also complete Schedule M1NR to allocate only Minnesota-source income to the state.8Minnesota Department of Revenue. 2025 Schedule M1NR, Nonresidents/Part-Year Residents
If You Don’t Live in Minnesota
Non-residents owe Minnesota tax only on income from Minnesota sources, and whether a capital gain qualifies depends on what you sold.9Minnesota Department of Revenue. How Minnesota Taxes Nonresident Income
Gains on tangible property located in Minnesota, such as real estate or business equipment used in the state, are Minnesota-source income no matter where the seller lives. A non-resident who sells a cabin on a Minnesota lake owes Minnesota tax on the profit.
Gains on intangible assets like stocks, bonds, and mutual funds are generally sourced to the seller’s state of residence. A Texas resident selling shares in a Minnesota-headquartered public company owes nothing to Minnesota on that gain. The exception is when the intangible was used in furtherance of a business activity in Minnesota, in which case the gain becomes Minnesota-source.
Sales of partnership or S corporation interests can trip people up. If the entity has business activities or assets in Minnesota, the gain on sale of the interest is sourced to the state even if the seller lives elsewhere. Non-residents who receive a Minnesota Schedule KPI, KS, or KF from a pass-through entity should report that income on Schedule M1NR rather than assume their home state gets the whole thing.