Minnesota Tax on Capital Gains Guide – Minnesota does not impose a separate capital gains tax. Instead, the state taxes net capital gains as ordinary income using the same progressive income tax rates that apply to wages, salaries, and other taxable income. This differs from the federal system, which offers preferential rates for long-term capital gains.
Whether you are a Minnesota resident selling stocks, real estate, or other assets—or a nonresident with Minnesota-source gains—this guide explains everything you need to know for tax year 2026. All information is based on the latest data from the Minnesota Department of Revenue (DOR) as of 2026.
What Are Capital Gains?
Capital gains occur when you sell a capital asset—such as stocks, bonds, mutual funds, real estate, or collectibles—for more than your adjusted basis (typically purchase price plus improvements minus depreciation). The difference is your capital gain. Losses on sales are capital losses.
- Short-term capital gains: Assets held one year or less.
- Long-term capital gains: Assets held more than one year.
Minnesota treats both the same way for state tax purposes—no preferential rate applies to long-term gains.
You must net gains and losses together. Up to $3,000 of net capital losses ($1,500 if married filing separately) can offset ordinary income each year, with excess carried forward.
Federal vs. Minnesota Capital Gains Tax Treatment
Federally, long-term capital gains qualify for lower rates (0%, 15%, or 20% depending on taxable income), plus a potential 3.8% Net Investment Income Tax (NIIT) for high earners. Short-term gains are taxed as ordinary income (up to 37%).
In Minnesota:
- All net capital gains (short- and long-term) are included in Minnesota taxable income.
- They are taxed at the state’s ordinary income tax rates (5.35% to 9.85%).
- Minnesota conforms to certain federal exclusions, such as the home-sale exclusion and qualified small business stock (QSBS) rules.
This means Minnesota residents often face a higher effective rate on long-term gains than in states with preferential treatment or no income tax.
Minnesota Capital Gains Tax Rates for 2026
Minnesota’s individual income tax brackets are adjusted annually for inflation. For tax year 2026, the rates and brackets are:
Married Filing Jointly
- 5.35% on $0 – $48,700
- 6.80% on $48,701 – $193,480
- 7.85% on $193,481 – $337,930
- 9.85% on $337,931 and above
Married Filing Separately
- 5.35% on $0 – $41,010
- 6.80% on $41,011 – $164,800
- 7.85% on $164,801 – $270,060
- 9.85% on $270,061 and above
Head of Household
- 5.35% on $0 – $33,310
- 6.80% on $33,311 – $109,430
- 7.85% on $109,431 – $203,150
- 9.85% on $203,151 and above
Single Filers
- 5.35% on $0 – $24,350
- 6.80% on $24,351 – $96,740
- 7.85% on $96,741 – $168,965
- 9.85% on $168,966 and above
These brackets apply to your Minnesota taxable income, which starts from federal adjusted gross income with Minnesota-specific additions and subtractions.
Minnesota’s Additional 1% Net Investment Income Tax (NIIT)
High-income taxpayers face an extra layer. For tax years beginning after December 31, 2023 (including 2026), Minnesota imposes a 1% Net Investment Income Tax on net investment income exceeding $1 million. Capital gains count toward net investment income (similar to the federal NIIT).
This applies to individuals, estates, and trusts. Nonresidents and part-year residents calculate it based on the Minnesota portion of their net investment income.
Capital Gains Exclusions and Deductions Available in Minnesota
Minnesota follows federal rules in key areas:
- Primary residence exclusion: Up to $250,000 ($500,000 for married filing jointly) of gain on the sale of your main home is excluded if you meet ownership and use tests (2 out of the last 5 years).
- Qualified small business stock (QSBS): Partial or full exclusion may apply depending on acquisition date.
- Capital losses: Fully deductible against gains; up to $3,000 net loss against ordinary income annually.
There is no Minnesota-specific capital gains exclusion or preferential rate. Certain other subtractions (e.g., U.S. bond interest) may apply but do not directly reduce capital gains.
How Nonresidents and Part-Year Residents Are Taxed?
Minnesota taxes nonresidents only on Minnesota-source income. This includes:
- Capital gains from the sale of Minnesota real estate or tangible property located in the state.
- Gains from intangible assets (stocks, etc.) if connected to a Minnesota trade or business.
Gains from the sale of stocks or other intangibles held purely as investments are generally not taxable by Minnesota for nonresidents. Part-year residents are taxed on gains realized while they were Minnesota residents.
Reporting Capital Gains on Your Minnesota Tax Return
- Report all capital gains and losses on federal Form 8949 and Schedule D.
- Transfer the federal net capital gain/loss to your Minnesota Form M1 (Individual Income Tax Return).
- Complete Minnesota Schedule M1M (Income Additions and Subtractions) if you have any Minnesota-specific adjustments.
- If subject to the 1% NIIT, file Schedule NIIT.
- File Form M1 by April 15, 2027 (for 2026 tax year), or request an extension.
Electronic filing is strongly recommended via the Minnesota DOR website. You may also owe estimated tax payments if you expect significant capital gains.
Strategies to Minimize Your Minnesota Capital Gains Tax
- Hold assets longer than one year (federal benefit only).
- Harvest tax losses to offset gains.
- Maximize retirement account contributions or other deductions to lower your overall bracket.
- Consider timing large sales around changes in residency or income levels.
- Use the primary residence exclusion when selling your home.
- Consult a tax professional for charitable donations of appreciated assets or 1031 exchanges (real estate only).
Note: Minnesota does not allow a step-up in basis for state purposes in the same way some states do, so plan accordingly for inherited assets.
Common Questions About Minnesota Tax on Capital Gains
Does Minnesota tax long-term capital gains differently?
No. All capital gains are taxed at ordinary state income tax rates.
How much is the top Minnesota capital gains tax rate?
9.85% plus the 1% NIIT for qualifying high earners—potentially 10.85% combined state rate on top of federal taxes.
Are capital gains from out-of-state property taxable in Minnesota?
Generally no for nonresidents, unless the property is located in Minnesota or tied to a Minnesota business.
Can I deduct capital losses on my Minnesota return?
Yes, following federal rules with the $3,000 annual limit against ordinary income.
For the most personalized advice, visit the official Minnesota Department of Revenue website or consult a qualified tax advisor. Tax laws can change, and your situation may involve additional factors such as the alternative minimum tax or credits.
This guide is for informational purposes only and is not tax advice. Always verify the latest forms and instructions directly from revenue.state.mn.us.