Maryland Tax on Capital Gains

Maryland taxes capital gains the same way it taxes regular income. Unlike the federal tax system, Maryland does not offer lower tax rates for long-term capital gains.

That means whether you held an investment for a few months or many years, your capital gains are added to your income and taxed at Maryland’s standard state and local income tax rates.

How Maryland Taxes Capital Gains

1. Capital Gains Are Treated as Ordinary Income

Both short-term and long-term capital gains are included in your Maryland adjusted gross income (AGI). They are taxed based on:

• Your total income
• Your filing status
• Your county or city of residence

There is no special lower rate for long-term gains at the state level.

Maryland State Income Tax Rates

For most taxpayers, Maryland’s standard state income tax rates range from 2% to 5.75%.

However, beginning in 2025, Maryland added new higher tax brackets for high-income earners:

• 6.25% on income over
  • $500,000 (single filers)
  • $600,000 (married filing jointly)
• 6.50% on income over
  • $1,000,000 (single filers)
  • $1,200,000 (married filing jointly)

These higher rates apply to all income, including capital gains.

Local County Income Taxes

In addition to state income tax, every Maryland county and Baltimore City imposes a local income tax.

• Local tax rates range from 2.25% to 3.3%
• The tax is calculated as a percentage of your federal AGI
• Capital gains are included in the income subject to this tax

As a result, Maryland residents often pay a combined state and local tax rate of 5% to 10% or more on capital gains, depending on income level and county.

New 2% Capital Gains Surtax (Effective 2025)

Starting with tax years beginning after December 31, 2024, Maryland imposes a new 2% surtax on capital gains for high-income taxpayers.

Who Pays the Surtax?

• Individuals with federal AGI over $350,000
• Applies regardless of filing status
• The surtax applies only to net capital gains

This 2% surtax is charged in addition to:

• Maryland state income tax
• Local county income tax

Capital Gains Exempt from the 2% Surtax

Certain types of gains are excluded from the new surtax, including:

• Primary residence sales
  • If the sale price is under $1.5 million
• Retirement account gains
  • 401(k)s
  • Traditional IRAs
  • Roth IRAs
• Certain business property
  • Property qualifying under IRC Section 179
• Conservation and preservation land sales
  • Agricultural, forest, or conservation easement property

These gains may still be taxed under normal Maryland income tax rules, but not the additional 2% surtax.

Federal Capital Gains Taxes Still Apply

Maryland taxes are separate from federal taxes, which can significantly increase your total tax bill.

Federal Capital Gains Rates

• Long-term capital gains:
  • 0%, 15%, or 20% (based on income)
• Short-term capital gains:
  • Taxed as ordinary income (10%–37%)
• Net Investment Income Tax (NIIT):
  • Additional 3.8% for high-income taxpayers

Why This Matters

For high-income Maryland residents, capital gains may be subject to:

• Federal capital gains tax
• 3.8% NIIT (if applicable)
• Maryland state income tax (up to 6.5%)
• Local county income tax (up to 3.3%)
• New 2% Maryland capital gains surtax

In some cases, the combined tax rate can exceed 30%.

Filing Tip

Because Maryland’s capital gains rules are complex—especially with the new surtax—electronic tax filing  can help ensure:

• The surtax is calculated correctly
• Exempt gains are properly excluded
• State and local taxes are accurately reported