Capital Gains Tax in Arizona (2026)
Arizona taxes income at a flat 2.5% — but a 25% subtraction on net long-term gains (A.R.S. §43-1022) cuts the effective long-term rate to just 1.875%. Short-term gains pay the full 2.5%. Run the combined federal + Arizona number below.
Reviewed & updated · 2026 tax-year figures · Federal + Arizona state
Arizona has one of the lowest capital gains burdens in the country. The state rate is a flat 2.5% (A.R.S. §43-1011), and A.R.S. §43-1022 lets you subtract 25% of any net long-term gain before that rate — an effective 1.875% on long-term gains. Short-term gains get no subtraction and pay 2.5%. Either way it stacks on the federal 0/15/20% (IRC §1(h)) and the 3.8% NIIT. A top-bracket Arizonan pays roughly 25.7% combined on a long-term gain — well below most states.
Net proceeds $178,150$21,850
Show our work federal + AZ, step by step
Estimates only, for the 2026 tax year. Not tax advice. The Arizona rate of 2.5% is fixed by statute (A.R.S. §43-1011); the 25% long-term subtraction is set by A.R.S. §43-1022. Federal bracket thresholds and standard deductions are projected 2026 amounts, marked est. and owner-verifiable against the final IRS release.
How does Arizona tax capital gains?
Arizona gives long-term investors a real break. The state taxes income at a single flat rate of 2.5% under A.R.S. §43-1011, but before that rate applies, A.R.S. §43-1022 lets individuals subtract 25% of net long-term capital gain from Arizona gross income. The result: long-term gains are effectively taxed at 1.875%, while short-term gains — which get no subtraction — pay the full 2.5%.
The 25% subtraction used to be limited to assets acquired after December 31, 2011 — a rule that forced sellers to prove an asset’s vintage. Effective for tax years beginning in 2026, the subtraction applies to all assets regardless of acquisition date, so any qualifying net long-term gain now enjoys the 1.875% effective rate. Arizona levies no additional local or municipal income tax on capital gains, so a Phoenix stock sale, a Sedona second-home sale, or a Tucson crypto disposition all land at the same effective rate.
How does Arizona stack on top of federal?
The two systems run in parallel and the amounts are added — Arizona does not replace or absorb the federal tax. For a long-term gain, you owe:
- Federal: 0%, 15%, or 20% depending on where the gain stacks on your taxable income, under IRC §1(h);
- Federal NIIT: an extra 3.8% on net investment income once MAGI passes $200,000 (single) / $250,000 (joint), under IRC §1411; and
- Arizona: 2.5% on the gain, less a 25% subtraction on any long-term portion (A.R.S. §43-1022) — an effective 1.875% long-term, 2.5% short-term.
Add those together and a top-bracket Arizonan with a long-term gain pays roughly 20% + 3.8% + 1.875% ≈ 25.7% — one of the lowest combined burdens in the nation. A short-term gain is worse: the federal side jumps to ordinary rates (up to 37%) and Arizona charges the full 2.5% with no subtraction. The calculator above computes each layer separately.
What is the 2026 Arizona capital gains rate?
Arizona applies a single flat rate, adjusted by the long-term subtraction. Here is how the pieces combine.
| Arizona individual income tax | Rate |
|---|---|
| Flat individual income tax · A.R.S. §43-1011 | 2.5% |
| Short-term capital gain (no subtraction) | 2.5% |
| Long-term capital gain (after 25% subtraction) · §43-1022 | 1.875% |
| Local / municipal income tax on gains | None |
| Additional tax over $1,000,000 | None |
How this calculator works & where the numbers come from
No black box. The federal side uses the same unit-tested engine as our main calculator: net gain = proceeds − basis; classify by holding period; for long-term gains, subtract the standard deduction and stack the gain across the 0/15/20% bands per IRC §1(h); add 3.8% NIIT where modified AGI crosses the §1411 threshold; short-term gains are computed as the true marginal difference in ordinary tax. The Arizona side takes the same taxable gain (after any §121 exclusion, since Arizona begins from federal AGI). For a long-term gain it subtracts 25% (A.R.S. §43-1022) and applies 2.5% to the remaining 75% — an effective 1.875%; for a short-term gain it applies 2.5% to the full amount. The two results are summed.
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Primary sources (linked, not just named)
- A.R.S. §43-1011 — 2.5% rate of tax
- A.R.S. §43-1022 — 25% long-term capital gains subtraction
- Arizona Dept. of Revenue — individual income tax
- Arizona Department of Revenue
- 26 U.S.C. §1(h) — federal capital gains rates
- 26 U.S.C. §1411 — 3.8% NIIT
- 26 U.S.C. §121 — home-sale exclusion
- IRS Topic No. 409 — Capital Gains and Losses
- IRS Publication 550 — Investment Income
Arizona capital gains tax, answered
Does Arizona have a separate capital gains tax rate?
Sort of — Arizona gives long-term gains a discount. Income is taxed at a flat 2.5% (A.R.S. §43-1011), but §43-1022 subtracts 25% of net long-term gain first, so long-term gains are effectively taxed at 1.875%. Short-term gains get no subtraction and pay 2.5%.
How much is capital gains tax in Arizona for 2026?
Long-term: 1.875% of the gain. Short-term: 2.5%. That is added to the federal capital gains tax — 0/15/20% (IRC §1(h)) plus 3.8% NIIT for high earners. A top-earning Arizonan pays roughly 20% + 3.8% + 1.875% ≈ 25.7% combined on a long-term gain. Use the calculator above for your exact figure.
How does Arizona capital gains tax stack on top of federal?
They are computed separately and summed. The federal side taxes long-term gains at 0/15/20% and adds 3.8% NIIT for high earners. Arizona applies 2.5% to the gain, after subtracting 25% of any long-term portion (§43-1022). Your total tax is federal + NIIT + Arizona.
How does Arizona's 25% long-term subtraction work?
You subtract 25% of net long-term capital gain before the 2.5% rate (A.R.S. §43-1022). On a $100,000 long-term gain, only $75,000 is taxed, at 2.5% = $1,875 — an effective 1.875%. Effective 2026 the subtraction applies to all assets, not just those acquired after 2011. Short-term gains receive no subtraction.
Does the 3.8% federal NIIT apply to Arizona residents?
Yes — the NIIT is federal and applies in every state. Once modified AGI exceeds $200,000 (single) or $250,000 (married filing jointly), the 3.8% surtax under IRC §1411 hits the lesser of your net investment income or the amount over the threshold. It is added to your federal capital gains tax and is entirely separate from Arizona state tax.
Does Arizona conform to the $250k/$500k home-sale exclusion?
Yes. Arizona begins from federal adjusted gross income, so the IRC §121 exclusion of up to $250,000 ($500,000 married filing jointly) is already removed before Arizona applies its rate. If the remaining home gain is long-term, the 25% subtraction applies on top. See our home-sale hub for the mechanics.
Compare Arizona with other state hubs
Arizona’s 1.875% effective long-term rate is among the lowest in any income-tax state — lighter than flat-tax neighbors like Colorado (4.40%) and Illinois (4.95%), and dramatically below California (up to 13.3%). Only the no-income-tax states like Texas and Florida beat it outright. Every state page combines the same unit-tested federal engine with that state's own rules, so you always see the full combined number, not just half of it. The main Capital Gains Tax Calculator lets you fold any state's rate into your federal receipt.