Virginia Tax on Capital Gains

In Virginia, capital gains are taxed the same way as regular income.

Unlike the federal tax system, Virginia does not provide lower tax rates for long-term capital gains.

Whether you held an asset for a few months or many years, the gain is added to your income and taxed under Virginia’s standard income tax brackets.

How Virginia Taxes Capital Gains

Ordinary Income Rates Apply

• Short-term capital gains (assets held 1 year or less)
• Long-term capital gains (assets held more than 1 year)

Both are taxed exactly the same in Virginia—there is no special treatment for long-term gains.

Virginia Individual Income Tax Rates (Apply to Capital Gains)

Virginia uses a progressive tax system, meaning different portions of your income are taxed at different rates:

• 2% on the first $3,000
• 3% on income from $3,001 to $5,000
• 5% on income from $5,001 to $17,000
• 5.75% on income over $17,000

Your capital gains are added to your other taxable income, which may push some or all of your income into higher brackets.

Key Difference from Federal Capital Gains Taxes

The biggest distinction between Virginia and the federal system is how long-term gains are treated.

Federal System

• Long-term capital gains are taxed at preferential rates:
  • 0%
  • 15%
  • 20%
• Rate depends on total taxable income

Virginia System

• No preferential rates
• Long-term capital gains are taxed at up to 5.75%
• Gains are treated like wages or interest income

Potential Deductions and Subtractions

Although capital gains are generally taxable in Virginia, certain exclusions or subtractions may reduce your tax bill.

Qualified Virginia Business Investment

• Certain long-term capital gains may be subtracted if:
  • The investment is in a qualified Virginia business
  • The business has its principal facility in Virginia
  • Specific revenue and holding-period requirements are met

This provision is narrow but valuable for eligible investors.

Sale of a Primary Residence

Virginia generally follows federal home sale rules:

• Up to $250,000 of gain may be excluded ($500,000 if married filing jointly)
• Must meet ownership and use tests
• Any gain excluded federally is also excluded from Virginia taxable income

Only the taxable portion, if any, flows through to Virginia.

Example

• A Virginia taxpayer sells stock and realizes a $20,000 long-term capital gain
• Federally, the gain may be taxed at 15%
• In Virginia:
  • The $20,000 is added to wages and other income
  • The gain may be taxed up to 5.75%, depending on total income

Why Electronic Filing Is Recommended

Capital gains can interact with multiple income sources, exclusions, and subtractions, making manual calculations risky.

Benefits of Electronic Filing

• ✔ Automatically includes capital gains from federal returns
• ✔ Correctly applies Virginia tax brackets
• ✔ Handles home sale exclusions and business subtractions
• ✔ Reduces calculation errors
• ✔ Speeds refunds and confirmations

The Virginia Department of Taxation supports electronic filing through VATAX Online Services and approved tax software.

Bottom Line

Virginia taxes all capital gains as ordinary income, regardless of how long the asset was held, with rates topping out at 5.75%.

While this differs from the federal system, exclusions for primary residence sales and qualified Virginia business investments may reduce taxable income.

Because capital gains calculations often involve federal-to-state adjustments, electronic filing is the safest and most accurate way to file your Virginia return.