What Is the Massachusetts Capital Gains Tax Rate?

The Massachusetts capital gains tax rate depends on what you sold and how long you held it. Short-term gains on assets held one year or less are taxed at 8.5%. Most long-term gains, on assets held more than a year, are taxed at 5%. Long-term gains on collectibles carry a 12% rate, but a 50% deduction brings the effective rate down to 6%. On top of all this, a 4% surtax applies to taxable income above an inflation-adjusted threshold, which was $1,083,150 for the 2025 tax year.1Mass.gov. Massachusetts Tax Rates

The Three Rates in Detail

The holding period is the single biggest factor in what you’ll pay. Sell too soon and you pay nearly 70% more in state tax on the same dollar of gain.

  • Short-term gains (held one year or less): 8.5%. This applies to stocks, crypto, and anything else you flipped within a year, including short-term sales of collectibles.
  • Long-term gains (held more than one year): 5%. This is the rate for most investment property, including stocks, bonds, mutual fund shares, and real estate.
  • Long-term collectibles gains: 12%, with a 50% deduction. Only half the gain is actually taxed, so the effective rate is 6%.

Collectibles include rare coins, stamps, antiques, artwork, metals, gems, and certain alcoholic beverages. If you sell antique furniture a year or more after buying it and clear $100,000 in gain, you deduct $50,000 and pay 12% on the remaining $50,000, which comes to $6,000 in state tax.2Mass.gov. 1.201 Capital Gains Deduction for Collectibles Sell that same piece within a year, and you lose the 50% deduction and pay 8.5% on the full gain as a short-term item.

The 4% Surtax Can Catch You on a Single Big Sale

Since 2023, Massachusetts has added a 4% surtax to taxable income above an annually adjusted threshold. For 2025, that threshold was $1,083,150. Only the income above the line is hit with the extra 4%.3Mass.gov. Massachusetts 4% Surtax on Taxable Income

Capital gains create a particular trap here. One large sale can push you across the threshold in a single year even if your ordinary income wouldn’t come close. Consider a home sale with $800,000 of taxable gain (after the exclusion, which comes later) on top of $400,000 in wages. The portion above the surtax threshold gets taxed at the normal rate plus 4%, which effectively lifts the marginal rate on long-term gains from 5% to 9%, or short-term gains from 8.5% to 12.5%. A significant share of surtax revenue comes from capital gains for exactly this reason.1Mass.gov. Massachusetts Tax Rates

Figuring Out the Taxable Gain

Before you apply a rate, you need the gain itself. The formula is the net selling price minus your adjusted basis in the asset.

Your starting basis is usually what you paid, including purchase commissions and other acquisition costs. From there, the basis moves. Capital improvements made during ownership (a new roof on a rental, for instance) push it up. Depreciation you claimed for federal tax purposes pushes it down, even if you didn’t benefit fully from those deductions. The net selling price is your gross proceeds minus selling expenses like broker commissions and transfer taxes.

Inherited Property Gets a Step-Up

When you inherit an asset, your basis is generally the fair market value on the date the owner died, not whatever they paid years earlier. Massachusetts follows the federal rule on this. The step-up can wipe out most or all of the taxable gain if you sell soon after inheriting. One exception: tax-deferred retirement accounts like IRAs and 401(k)s don’t get the step-up.

Gifted Property Carries Over

If someone gives you an asset during their lifetime, your basis is generally the same as theirs. You inherit their original cost and potentially a large built-in gain. People who receive appreciated stock or real estate as gifts are often surprised to find they owe tax on decades of appreciation when they sell.

Offsetting Gains With Losses

Capital losses in the same tax year can cancel out capital gains, but the matching order is specific. Short-term losses offset short-term gains first; long-term losses offset long-term gains first. Only after that initial matching can leftover losses cross over to the other category.4Mass.gov. Differences Between MA and Federal Tax Law for Personal Income

If a net loss remains after all your gains are offset, Massachusetts lets you use up to $2,000 of it to reduce interest and dividend income. That’s narrower than the federal rule, which allows $3,000 against any kind of income. Massachusetts does not let capital losses reduce wages, business income, or other ordinary income.5General Court of Massachusetts. Massachusetts General Laws Chapter 62 Section 2

Any loss beyond that $2,000 carries forward to future years with no expiration. It keeps its short-term or long-term character, and the same matching order applies when you use it later.6Mass.gov. Technical Information Release TIR 02-21 – Capital Gains and Losses

The Home Sale Exclusion

For most Massachusetts taxpayers, the biggest exemption they’ll ever use is the primary residence exclusion. Massachusetts conforms to the federal rule under IRC Section 121: you can exclude up to $250,000 of gain if you’re single, or $500,000 if you’re married filing jointly.7Mass.gov. 1.021 Exemption of Capital Gains on Home Sales

To qualify, 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 exclusion doesn’t apply to investment properties, vacation homes, or rental units. If you used part of the home for business, you’ll have to allocate the gain between the residential and business portions.

In high-value Massachusetts markets, gains above the exclusion are common. A couple who bought at $300,000 and sells at $1,100,000 has an $800,000 gain. After the $500,000 exclusion, $300,000 remains taxable at 5% (assuming more than a year of ownership), which is $15,000 in state tax. If the leftover gain pushes their total taxable income over the surtax line, the 4% surtax applies to the excess as well.

Other Exemptions Worth Knowing

Two narrower exemptions are worth flagging. Massachusetts conforms to the federal Section 1202 exclusion for Qualified Small Business Stock. If you hold stock in a qualifying C corporation for more than five years and meet the other requirements, you can exclude up to 100% of the gain at both levels. Any QSBS gain that isn’t fully excluded is taxed at a reduced Massachusetts rate of 3% rather than 5%, reported on Schedule D-IS.8Mass.gov. 2025 Schedule D-IS Long-Term Capital Gains and Losses Excluding Collectibles

Gains on Massachusetts municipal bonds get mixed treatment. Bonds issued by entities like the Massachusetts Port Authority, the MBTA, and the University of Massachusetts Building Authority produce exempt gains. Bonds from housing authorities and certain development corporations are taxable. The distinction runs bond by bond, so check the issuing entity before assuming a sale is tax-free.9Mass.gov. TIR 80-2 Income Tax Treatment of Interest and Gains on Certain Bonds

How Massachusetts Compares to Federal Rules

Several differences trip people up when they move from the federal return to the state return:

  • Long-term rate: Federal law uses 0%, 15%, or 20% brackets based on income. Massachusetts applies a flat 5%, plus the 4% surtax above the threshold.
  • Short-term rate: Federally, short-term gains are taxed as ordinary income at your marginal rate. Massachusetts taxes them at a flat 8.5%.
  • Loss deduction against other income: Federal allows $3,000 against any income. Massachusetts allows $2,000, and only against interest and dividend income.4Mass.gov. Differences Between MA and Federal Tax Law for Personal Income
  • Collectibles: Federal caps the long-term collectibles rate at 28%. Massachusetts effectively taxes them at 6%.

The flat state rate can cut either way. If you’re in a low federal bracket, Massachusetts at 5% may actually be higher than your federal 0% long-term rate. High earners paying 20% federally get a lower rate at the state level, at least before the surtax factors in.

Which Forms You File

Capital gains are reported on two separate Massachusetts schedules that feed into your main return.10Mass.gov. 2025 Massachusetts Personal Income Tax Forms and Instructions

Schedule B (“Interest, Dividends, and Certain Capital Gains and Losses”) is where short-term capital gains and losses go, along with long-term gains on collectibles. Schedule D (“Long-Term Capital Gains and Losses Excluding Collectibles”) handles regular long-term gains and losses. Totals from both schedules flow onto Form 1 if you’re a Massachusetts resident, or Form 1-NR/PY if you’re a nonresident or part-year resident with Massachusetts-sourced capital gains.

If you’re taking a gain on an installment basis over multiple years, you need advance approval from the Department of Revenue’s Installment Sales Unit; splitting the gain across returns on your own without that approval can result in the full tax being assessed in the year of sale.11Mass.gov. AP 201 Installment Sales