Illinois Capital Gains Tax, Explained
A flat 4.95% on every gain, and a retirement-income exemption that means WHICH account you sell from decides whether Springfield gets paid. We'd know; we're headquartered there.
Quick Answer
Illinois taxes capital gains as ordinary income at a flat 4.95%, no long-term discount, on top of the federal 0/15/20% brackets and 3.8% NIIT. The twist that matters: Illinois doesn't tax retirement income at all, so gains inside a 401(k)/IRA come out Illinois-tax-free while identical gains in a brokerage account pay 4.95%. Enter 4.95 in the state field of our capital gains tax calculator for your combined number.
The Flat 4.95%: Simple Math, Federal Strategy
Illinois keeps it brutally simple: gain × 4.95%, whether you held for a week or a generation. No brackets to fill, no cliffs to dodge, no state-level discount to chase. That pushes all the interesting strategy federal, hold past one year, harvest in low-income years, use the 0% federal bracket, and Illinois automatically inherits every dollar you shave off federal AGI.
| Sale | Illinois (4.95%) | Typical federal add-on | Combined |
|---|---|---|---|
| $100,000 LTCG, $175K household | $4,950 | ~$15,000 (15%) | ~$19,950 (≈20%) |
| $400,000 LTCG, $350K household | $19,800 | ~$75,200 (15% + NIIT) | ~$95,000 (≈24%) |
| $100,000 short-term gain, top bracket | $4,950 | ~$37,000 + NIIT | ~$45,750 (≈46%) |
The Retirement Exemption: Illinois's Great Asymmetry
Illinois is one of the friendliest states in America to retirement-account money and completely indifferent to your brokerage account. Distributions from 401(k)s, IRAs, and pensions, including every dollar of gain earned inside them, leave the state untaxed. The same $50,000 of appreciation realized in a taxable account pays $2,475 to Springfield.
For Illinois retirees, that turns two ordinary decisions into real money: withdrawal sequencing (drawing from the IRA versus selling in the brokerage account changes the state bill directly) and Roth conversions, which generally escape Illinois tax on the way out of the traditional account. The federal side still runs the show, bracket-fill math, IRMAA, the works, but Illinois quietly subsidizes the retirement-account route.
Asset location is worth more in Illinois
If future gains will be realized anyway, holding the growth assets inside retirement accounts and the stable assets in taxable, the classic asset-location play, carries an extra 4.95% payoff here. It's a portfolio-design decision with a tax return attached.
Homes, Rentals, and the Payment Step Everyone Misses
Because Illinois starts from federal AGI, the Section 121 exclusion ($250K/$500K on a primary residence), installment-sale treatment, and 1031 exchange deferral all flow through automatically, the 1031 exchange rules defer the 4.95% right alongside the federal bill. Rental sellers should model federal depreciation recapture (up to 25%) plus Illinois's flat rate, and anyone leaving a home behind should weigh selling versus renting it out while the exclusion window is open.
Estimated tax payments guide · Penalty calculator
One more note, since this is our home turf: Taxstra is headquartered in Springfield, Illinois and serves clients in all fifty states. Illinois returns, multi-state situations, and everything the flat 4.95% touches are daily work here.
What changed in Illinois
Rate and rule changes for recent tax years and changes already enacted for future years, each linked to the state source. Sources last checked September 2, 2026.
Tax year 2026
- In effect
Flat 4.95% and full retirement subtraction unchanged
The 4.95% flat rate and the subtraction of federally taxed Social Security, qualified plan, IRA, and government retirement income continue for 2026. The personal exemption rises to $2,925 from $2,850.
Effective January 1, 2026. Source: Illinois DOR: income tax rates, checked September 2, 2026.
Educational, not individualized tax advice. Rates shown are statutory; your result depends on residency, filing status, and the income involved.
Illinois Capital Gains FAQs
How much is capital gains tax in Illinois?
Illinois taxes capital gains as ordinary income at its flat 4.95%, no long-term discount, no surtaxes, no exclusions for holding period. A $200,000 gain costs $9,900 in Illinois tax regardless of how long you held the asset, on top of the federal 0/15/20% brackets and the 3.8% NIIT where it applies.
Does Illinois give a break for long-term capital gains?
No. The federal government cuts your rate for holding past one year; Illinois doesn't distinguish. The state's flat 4.95% applies identically to a day trade and a decade-long hold, which means all the holding-period strategy on your return lives on the federal side.
Is it true Illinois doesn't tax retirement income but does tax my brokerage gains?
Yes, and this asymmetry is the most useful fact on this page. Illinois exempts retirement income. 401(k) and IRA distributions, pensions, Social Security, but fully taxes gains realized in taxable brokerage accounts at 4.95%. For an Illinois retiree, which account you draw from literally decides whether the state gets paid. That makes withdrawal sequencing and asset location unusually valuable here.
Does Illinois tax the gain when I sell my house?
Illinois starts from federal AGI, so the Section 121 exclusion flows through: $250,000 of primary-residence gain ($500,000 married filing jointly) escapes both federal and Illinois tax if you lived there two of the last five years. Gain above the exclusion is taxed at 4.95%.
Do Roth conversions make more sense for Illinois residents?
Often, yes, with a catch worth knowing. Because Illinois doesn't tax retirement income, a conversion from a traditional IRA generally escapes Illinois tax on the way out AND the Roth is tax-free later, but you pay full federal tax in the conversion year. The bracket-fill math is the same as anywhere; the Illinois exemption just sweetens it. Model it before December.
Does a 1031 exchange defer Illinois tax?
Yes. Illinois conforms to the federal calculation, so a properly executed 1031 exchange defers the Illinois 4.95% along with the federal bill, the 45-day and 180-day federal clocks are the binding constraints.
Capital gains tax by state
Selling in Illinois, or planning the drawdown?
We model the flat 4.95%, the retirement-account asymmetry, the federal stack, and the payment plan as one picture. Illinois-based, serving all fifty states.
Tax planning slots are limited before year-end.