Indiana Tax on Capital Gains

Because Indiana uses a flat individual income tax, all taxable capital gains are subject to the same rate as wages, interest, and other income.

• 2025 tax year: 3.0%

• 2024 tax year: 3.05%

• Future rate reductions: Indiana law schedules gradual rate cuts, with the rate expected to decline to 2.9% by 2027

There is no distinction between:

• Short-term capital gains (held one year or less), and

• Long-term capital gains (held more than one year)

Both are fully taxable at the flat rate.

Local (County) Income Taxes on Capital Gains

In addition to the state tax, all 92 Indiana counties impose a local income tax, which also applies to capital gains because they are treated as regular income.

• Typical county tax range: Approximately 0.5% to 3%

• The exact rate depends on:

  • Your county of residence as of January 1 of the tax year

  • Local income tax rates set by the county

Example

If you realize a $50,000 capital gain in 2025:

• State tax (3.0%): $1,500

• County tax (e.g., 2.0%): $1,000

• Total Indiana tax: $2,500

This state and local tax is owed in addition to federal capital gains tax.

Federal Capital Gains Taxes Still Apply

Indiana’s flat tax system does not replace or reduce federal capital gains taxes. Indiana residents must still follow federal rules, which treat gains differently based on holding period:

• Short-term capital gains:

  • Assets held one year or less

  • Taxed at ordinary federal income tax rates (up to 37%)

• Long-term capital gains:

  • Assets held more than one year

  • Taxed at preferential rates of 0%, 15%, or 20%, depending on income

• Net Investment Income Tax (NIIT):

  • An additional 3.8% federal tax may apply to higher-income taxpayers

Indiana conforms to federal definitions of capital gains but not to federal preferential rates.

Important Planning Considerations

• No Indiana capital loss limitation: Capital losses may offset capital gains, following federal rules.

• Primary residence sales: Gains excluded at the federal level (up to $250,000 single / $500,000 joint) are generally excluded from Indiana taxable income as well.

• Timing matters federally, not at the state level: Holding an asset longer may reduce federal tax, but it does not change Indiana tax liability.

Recommendation: File Electronically

Because capital gains affect both federal and Indiana returns, electronic filing is strongly recommended:

• Automatically carries capital gains from Schedule D to Indiana forms

• Correctly calculates state and county income taxes

• Reduces errors when reporting large transactions

• Speeds up refunds and confirms receipt

Most taxpayers can e-file using IRS-approved tax software that supports Indiana state and county returns, ensuring all capital gains are reported correctly.