Indiana Tax on Capital Gains 2025 – Indiana taxes capital gains as ordinary income at the state level with no separate or preferential rate for long-term gains. For tax year 2025, the statewide flat income tax rate stands at 3%, down from 3.05% in 2024. This rate applies to all realized capital gains—whether from stocks, real estate, cryptocurrencies, or other assets—alongside your other taxable income.
Combined with federal capital gains taxes (0%, 15%, or 20% for long-term gains) and local county income taxes (typically 0.5%–3%), understanding your total liability is essential for accurate planning and filing.
Indiana State Income Tax Rate on Capital Gains for 2025
Indiana uses a flat tax system on adjusted gross income (AGI). For 2025, the individual income tax rate is 3% on all taxable income, including capital gains. There is no distinction between short-term and long-term gains at the state level, and no special exclusions or deductions apply solely to capital gains.
This rate is confirmed in official Indiana Department of Revenue (DOR) guidance for tax year 2025. The rate is scheduled to drop further to 2.95% in 2026 and 2.9% by 2027.
Key point: Capital gains are fully included in your Indiana taxable income. Indiana starts with your federal AGI and makes limited add-backs or subtractions, but capital gains themselves receive no preferential treatment.
Short-Term vs. Long-Term Capital Gains Taxation in Indiana
Indiana does not offer a lower rate for long-term capital gains (assets held more than one year). Both short-term and long-term gains are taxed at the same flat 3% state rate.
- Short-term gains (assets held one year or less): Taxed at Indiana’s 3% rate + your federal ordinary income tax rate (up to 37%).
- Long-term gains (assets held more than one year): Taxed at Indiana’s 3% rate + federal long-term capital gains rate (0%, 15%, or 20%).
This makes holding assets longer primarily beneficial for federal tax savings, not state.
Federal Capital Gains Tax Rates for 2025 (Combined Impact)
While Indiana taxes capital gains flatly, your total tax burden includes federal taxes. For tax year 2025:
Long-term capital gains rates (federal):
- 0% if taxable income ≤ $48,350 (single) or $96,700 (married filing jointly)
- 15% for most middle- to upper-income taxpayers
- 20% for high earners (over ~$533,400 single / $600,050 joint)
Short-term gains are taxed as ordinary federal income (up to 37%). High-income taxpayers may also owe the 3.8% Net Investment Income Tax (NIIT).
Example: A single Indiana resident with $100,000 in long-term capital gains (and no other income) would pay:
- Federal: ~15% = $15,000
- Indiana state: 3% = $3,000
- Plus county tax (see below)
County Income Taxes on Capital Gains in Indiana
All 92 Indiana counties impose a local income tax in addition to the state rate. These county taxes also apply to capital gains and typically range from 0.5% to 3%, with an average around 1.6%.
Your total effective state + local rate in 2025 could range from roughly 3.5% to 6%, depending on your county of residence. Rates are listed in the official 2025 Indiana County Tax Rates chart available from the DOR.
County taxes are collected on the same Indiana IT-40 return as the state tax.
Who Pays Indiana Capital Gains Tax?
- Indiana residents: Taxed on all capital gains (worldwide) at the state + county rates.
- Non-residents: Taxed only on Indiana-source capital gains, such as the sale of real estate located in Indiana or certain business interests tied to the state.
- Part-year residents: Prorated based on time spent in Indiana.
Partnerships and pass-through entities pass capital gains through to owners, who report them on their individual returns.
How to Calculate Indiana Capital Gains Tax in 2025?
- Calculate your federal AGI (including all capital gains/losses from Schedule D).
- Make any Indiana-specific add-backs or subtractions (generally minor for most investors).
- Apply the 3% state rate + your county’s rate to the Indiana taxable income.
- Report on Form IT-40 (or IT-40PNR for non-residents).
Net capital losses can offset gains federally and flow through to Indiana calculations. You can also carry forward excess losses.
Simple formula for state tax:
(Indiana Taxable Income × 3%) + (Indiana Taxable Income × County Rate)
Deductions, Exemptions, and Credits Affecting Capital Gains
Indiana offers no broad capital gains exclusion. However:
- Standard personal exemptions and certain deductions (e.g., military pay, retirement income) may reduce overall taxable income.
- No standard deduction exists, but itemized deductions that reduce federal AGI can indirectly help.
- Credits such as the Indiana Earned Income Tax Credit or property tax credits do not directly apply to capital gains.
Always check the current IT-40 instructions for any 2025-specific adjustments.
Tax Planning Strategies to Minimize Indiana Capital Gains Tax in 2025
Even with the flat rate, smart planning reduces your overall bill:
- Hold assets longer than one year → Qualifies for lower federal long-term rates.
- Tax-loss harvesting → Offset gains with losses (up to $3,000 net loss deductible against ordinary income federally; flows to Indiana).
- Maximize retirement accounts → Use 401(k)s, IRAs, or HSAs to defer or avoid taxes.
- 1031 exchanges → For real estate investors, defer federal (and potentially Indiana) taxes on investment property swaps.
- Charitable donations → Donate appreciated assets to avoid capital gains tax.
- Move to a lower-county-tax area → If feasible before selling large assets (though residency rules apply).
Consult a tax professional for personalized strategies, especially with large gains or complex investments.
Filing Deadlines and Requirements for 2025 Capital Gains
- Federal deadline: April 15, 2026 (or extension to October 15).
- Indiana deadline: Same as federal—April 15, 2026 (for calendar-year filers).
- File Form IT-40 with Schedule D information carried over from your federal return.
- Estimated payments may be required if you expect significant capital gains.
Use the Indiana DOR’s INTIME portal for easy electronic filing and payment.
Get Professional Help and Stay Compliant
Indiana’s flat 3% rate on capital gains for 2025 (plus county tax) keeps things simple compared to states with progressive brackets. However, the combined federal + state + local burden can still be substantial on large sales.
For the most accurate advice, review your specific situation with a CPA or tax advisor familiar with Indiana rules, or visit the official Indiana Department of Revenue website. Rates and rules can change, and this article is for informational purposes only based on 2025 guidance available as of early 2026.
Stay informed: Check the DOR’s annual tax chapter and IT-40 booklet each year for updates. Proper planning in 2025 can save you thousands when you file in 2026.