Maryland Tax on Capital Gains Guide – Maryland taxes capital gains as ordinary income at the state level, with no preferential long-term rate like the federal system. In 2025, the state introduced a new 2% surtax on net capital gains for high-income filers (federal AGI over $350,000), on top of regular state and local taxes. This comprehensive guide explains everything Maryland residents and investors need to know for tax years 2025 and 2026, including updated brackets, exemptions, reporting requirements, and strategies to reduce your tax bill. All information is based on official Maryland Comptroller guidance and current tax law.
What Are Capital Gains and How Does Maryland Tax Them?
Capital gains occur when you sell an asset (stocks, real estate, cryptocurrency, business property, etc.) for more than its adjusted basis. Maryland follows the federal definition of net capital gain under the Internal Revenue Code but taxes it differently at the state level.
Unlike the federal government, Maryland does not offer lower rates for long-term capital gains (assets held more than one year). All capital gains—short-term and long-term—are included in your Maryland adjusted gross income and taxed at the state’s progressive ordinary income tax rates, plus any applicable local county tax (up to 3.3%).
Starting in tax year 2025, high-income individuals face an additional 2% surtax on net capital gains if federal AGI exceeds $350,000 (same threshold for all filing statuses).
Maryland State Income Tax Brackets for 2026 (Tax Year 2025+)
Maryland updated its income tax brackets in 2025 with new top rates of 6.25% and 6.5%. Capital gains are taxed at these same rates. Here are the current brackets:
Single, Married Filing Separately, or Dependent Taxpayers
- $0 – $1,000: 2%
- $1,001 – $2,000: 3%
- $2,001 – $3,000: 4%
- $3,001 – $100,000: 4.75%
- $100,001 – $125,000: 5%
- $125,001 – $150,000: 5.25%
- $150,001 – $250,000: 5.50%
- $250,001 – $500,000: 5.75%
- $500,001 – $1,000,000: 6.25%
- Over $1,000,000: 6.5%
Married Filing Jointly, Head of Household, or Qualifying Widow(er)
- $0 – $1,000: 2%
- $1,001 – $2,000: 3%
- $2,001 – $3,000: 4%
- $3,001 – $150,000: 4.75%
- $150,001 – $175,000: 5%
- $175,001 – $225,000: 5.25%
- $225,001 – $300,000: 5.50%
- $300,001 – $600,000: 5.75%
- $600,001 – $1,200,000: 6.25%
- Over $1,200,000: 6.5%
Plus local county income tax (varies by residence, currently up to 3.3%).
Federal vs. Maryland Capital Gains Tax: Key Differences
| Aspect | Federal Tax | Maryland State Tax |
|---|---|---|
| Long-term rate | 0%, 15%, or 20% (plus 3.8% NIIT for high earners) | Same as ordinary income (2%–6.5%) |
| Short-term rate | Ordinary income (10%–37%) | Ordinary income (2%–6.5%) |
| Special surtax | None | 2% on net capital gains if FAGI > $350,000 |
| Primary residence exclusion | Up to $250k/$500k | No state exclusion, but surtax exemption if sold for < $1.5M |
Maryland residents pay both federal and state taxes on capital gains. The state surtax applies only to the net capital gain portion.
The New 2% Maryland Capital Gains Surtax Explained
Enacted in 2025 and effective for tax year 2025 onward, this surtax applies if your federal AGI exceeds $350,000. It is calculated on net capital gain included in Maryland AGI (after Maryland additions/subtractions).
Key rules:
- Applies to individuals, fiduciaries (on undistributed gains), and pass-through entities (gains flow to owners).
- Reported on new Form 502CG.
- Estimated taxes may be required via Form 502D.
- The surtax is in addition to regular state income tax and local tax.
Exempt assets (not subject to the 2% surtax):
- Primary residence (single-family home, townhome, condo, etc.) sold for less than $1.5 million.
- Gains in retirement accounts (401(k), 403(b), 457(b), IRA, Roth IRA, defined benefit/contribution plans).
- Certain livestock (cattle, horses) if >50% of gross income is from farming/ranching.
- Land under conservation, agricultural, or forest preservation easement.
- Section 179 business property.
- Affordable housing owned by qualifying nonprofits.
Short-Term vs. Long-Term Capital Gains in Maryland
Maryland makes no distinction for state tax purposes. Both are taxed at ordinary rates (plus the surtax if applicable). Federally, long-term gains receive preferential treatment, but Maryland does not conform.
How to Report Capital Gains on Maryland Tax Returns?
- Report all capital gains on federal Schedule D and Form 8949.
- Carry the net amount to Maryland Form 502 (resident) or 505 (nonresident).
- If FAGI > $350,000 and you have net capital gains, complete Form 502CG to calculate the 2% surtax.
- Add the surtax to your total Maryland tax liability.
- Nonresidents selling Maryland real estate may face withholding (but surtax does not apply to withholding).
Real-World Examples of Maryland Capital Gains Tax
Example 1 (No Surtax): Single filer with $80,000 taxable income + $20,000 long-term capital gain (total $100,000). State tax on the gain portion ≈ 5% bracket rate + local tax.
Example 2 (With Surtax): Married filing jointly, FAGI $400,000 (includes $150,000 net capital gain from stock sale). Regular state tax applies at 5.75%–6.25% brackets + 2% surtax on the full $150,000 (no exemptions apply) = $3,000 extra tax.
Tips to Minimize Maryland Capital Gains Tax
- Harvest tax losses to offset gains (up to $3,000 against ordinary income if losses exceed gains).
- Maximize federal primary residence exclusion ($250k/$500k).
- Time sales to stay under the $350,000 FAGI surtax threshold if possible.
- Donate appreciated assets to charity (avoid gains entirely).
- Consider opportunity zone investments or 1031 exchanges for real estate (federal deferral helps Maryland too).
- Contribute to retirement accounts to lower AGI.
- Consult a tax professional for pass-through entity planning or relocation strategies.
Common Mistakes to Avoid
- Forgetting to file Form 502CG when required.
- Missing the $1.5 million primary residence sale-price exemption for the surtax.
- Not making estimated tax payments on large gains.
- Overlooking county local tax (3.3% maximum in 2026).
- Assuming Maryland offers long-term capital gains preference—it does not.
Frequently Asked Questions About Maryland Capital Gains Tax
Does Maryland tax capital gains differently from ordinary income?
No—until the new surtax, they were taxed identically. The 2% surtax now adds an extra layer for high earners.
Is the 2% surtax permanent?
Yes, enacted as permanent law in 2025.
Do nonresidents pay Maryland capital gains tax?
Only on Maryland-sourced income (e.g., real estate located in Maryland).
Where can I find official forms and instructions?
Visit the Maryland Comptroller’s website for Form 502, 502CG, instructions, and Technical Bulletin 58.
Conclusion: Plan Ahead for Maryland Capital Gains Tax
Maryland’s capital gains tax can significantly impact your after-tax returns, especially with the new 2% surtax for higher earners and combined state + local rates reaching over 9% in some cases. Understanding the rules, using available exemptions, and proactive planning are essential.
This guide is for informational purposes only and is not tax advice. Tax laws change, and your situation is unique—consult a qualified Maryland tax professional or CPA for personalized guidance. For the latest forms and bulletins, always refer to the official Maryland Comptroller website.
Stay informed and optimize your taxes in 2026 and beyond!