Indiana Capital Gains Tax, Explained

Indiana has been running a multi-year, statute-scheduled rate cut. The individual adjusted gross income tax rate was 3.05% in 2024, stepped to 3.00% in 2025, and dropped to 2.95% for 2026, confirmed directly by the Indiana Department of Revenue. It's scheduled to fall again to 2.90% in 2027, with further small cuts possible in even-numbered years starting in 2030 if the state hits certain revenue growth targets.

Capital gains ride along with everything else. Indiana has never had a separate capital gains schedule, so every gain, stock, crypto, a rental in Fort Wayne, an ownership stake in a business, enters the return as ordinary income and takes the same flat rate as your paycheck.

Here's what makes Indiana different from most flat-tax states: the state rate is only half the picture. Every one of Indiana's 92 counties levies its own additional flat income tax, and unlike a municipal wage tax, it applies to the full state tax base, capital gains included. Your rate is fixed by your county of residence as of January 1 of the tax year, regardless of where you worked or where the asset sat.

The spread across counties is real money. For 2026, rates run from about 0.5% in Porter County up to 3.0% in Randolph County. Marion County (Indianapolis) sits at 2.02%, while neighboring Hamilton County (Carmel, Fishers, Noblesville) is lower at roughly 1.10%. Two Indiana residents with identical gains can owe meaningfully different total state-side tax depending on which side of a county line they live on.

Worked example: a $400,000 long-term capital gain, split three ways for the same seller depending on county of residence. State tax is identical in every case: $400,000 × 2.95% = $11,800. The county line is what moves. In Hamilton County, roughly $400,000 × 1.10% = $4,400, for a combined $16,200. In Marion County, $400,000 × 2.02% = $8,080, for a combined $19,880. In Randolph County, roughly $400,000 × 3.00% = $12,000, for a combined $23,800. Same gain, same state rate, nearly an $8,000 swing based on county alone.

Three layers can reach an Indiana gain, and the federal one is by far the largest. Long-term gains face federal rates of 0%, 15%, or 20% depending on income, plus the 3.8% net investment income tax once modified adjusted gross income passes $200,000 single or $250,000 married filing jointly. Short-term gains are taxed at ordinary federal brackets, which can run well above 20%.

Take a Marion County couple with $220,000 of W-2 income who sell a stock position held three years for a $100,000 long-term gain. The state and county layers are simple multiplication: $100,000 × 2.95% = $2,950 to Indiana, and $100,000 × 2.02% = $2,020 to Marion County. The federal layer does the heavy lifting: the gain sits in the 15% long-term bracket for $15,000, and because their total MAGI clears the $250,000 joint NIIT threshold, a portion of the gain also picks up the 3.8% surtax.

Notice where the leverage sits: the combined Indiana layers add up to under 5% in most counties, while the federal bracket and the NIIT threshold are where thousands of dollars turn on timing and income management. Our capital gains tax calculator runs the full stack, and the federal brackets guide shows where the 0/15/20% lines fall this year.

On the federal side, a rental sale splits into layers: the depreciation you claimed comes back as recapture at up to 25%, the remaining appreciation gets long-term rates, and the NIIT can ride on top. Indiana doesn't distinguish recapture from ordinary appreciation at all, both the state's 2.95% and your county's rate apply to the entire gain.

Worked example: an Indianapolis-suburb landlord in a county with a 1.75% rate sells a rental for a $220,000 total gain, of which $70,000 is depreciation recapture, and the seller is in the 15% federal long-term bracket. Federal: $70,000 × 25% = $17,500, plus $150,000 × 15% = $22,500, for $40,000. Indiana state: $220,000 × 2.95% = $6,490. County: $220,000 × 1.75% = $3,850. Combined Indiana layers: $10,340, on top of the $40,000 federal bill, before any NIIT.

Two planning notes follow. First, because both Indiana layers scale with the total gain rather than singling out recapture, the state-side cost of aggressive depreciation is mild, the federal 25% recapture rate is where that decision actually bites. Second, if a 1031 exchange is on the table, the deferral generally carries both Indiana layers along with the federal deferral, one decision, three layers deferred together.

Even after you stack the state's 2.95% and a county rate on top, most Indiana residents land at a combined state-side income tax cost of somewhere between roughly 3.45% and 5.95%, depending on county. That's a modest bill by national standards for a state that also imposes local income tax, and it's still falling as the statutory step-down continues toward 2.90% and potentially lower.

For anyone weighing a move into or within Indiana ahead of a planned sale, the practical takeaways are straightforward:

• County of residence on January 1 controls your rate for the whole year. If you're planning a large sale and considering a move, the county you live in on January 1 of the sale year is the one whose rate applies, not the county you move to mid-year.
• The county spread is worth checking before you assume a number. A near-3-percentage-point range between the lowest and highest county means the same gain can cost meaningfully different amounts depending on address alone.
• Loss harvesting and gain timing still flow through both layers. Because Indiana's return starts from federal adjusted gross income, a federal move that shrinks the gain shrinks the state and county tax in the same motion, with no separate Indiana election to file.

Full walkthrough: estimated tax payments guide.