North Carolina Capital Gains Tax

North Carolina does not impose a separate or preferential capital gains tax.

Instead, capital gains are treated as ordinary income and taxed under the state’s flat individual income tax rate.

This approach differs from the federal system, which applies reduced rates to long-term capital gains.

North Carolina State Capital Gains Tax

North Carolina applies the following rules:

• Tax Rate: Capital gains are taxed at a flat 4.25%
• Flat Tax Structure: The same rate applies regardless of income level
• No Holding-Period Distinction: North Carolina does not distinguish between short-term and long-term capital gains. Gains from assets held for one year or less and those held for many years are taxed identically at the state level.
• Income Inclusion: Capital gains are included in North Carolina taxable income along with wages, interest, dividends, and other earnings.

Scheduled Rate Reduction

Under current law, North Carolina’s flat income tax rate is scheduled to decrease to 3.99% for the 2026 tax year, assuming statutory conditions are met. If implemented, this reduction will lower the state tax burden on future capital gains.

Federal Capital Gains Taxes Still Apply

North Carolina state taxes are assessed in addition to federal capital gains taxes, which follow a different structure.

For the federal tax year:

Short-Term Capital Gains

• Assets held for one year or less
• Taxed at ordinary federal income tax rates, ranging from 10% to 37%, depending on income and filing status

Long-Term Capital Gains

• Assets held for more than one year are taxed at federal rates of:
• 0%
• 15%
• 20%
• Higher-income taxpayers may also owe the 3.8% Net Investment Income Tax (NIIT)

Because North Carolina does not offer reduced state rates for long-term gains, taxpayers often experience a larger contrast between federal and state tax treatment.

Practical Impact for North Carolina Taxpayers

Since North Carolina applies the same flat rate to all gains:

• Long-term investors do not receive a state-level tax advantage for holding assets longer
• Tax planning often focuses on federal holding periods and timing of sales
• State tax liability is predictable and easy to calculate once total gains are known

Why Electronic Filing Is Recommended

Because capital gains must be reported consistently on both federal and North Carolina state returns, electronic filing (e-filing) is recommended.

E-filing:

• Automatically transfers capital gains data from federal returns
• Reduces reporting and calculation errors
• Applies the correct flat tax rate
• Ensures accurate coordination between state and federal filings
• Speeds processing and refund delivery

Using approved tax software or a professional e-file provider helps ensure your North Carolina return is accurate, compliant, and efficiently filed.