Arizona has no separate capital gains tax. A gain is part of your federal adjusted gross income, which is where the Arizona return starts, and the state taxes it at its flat income tax rate. The one special rule is a subtraction that shields a quarter of certain long-term gains. This guide covers who qualifies for it, how losses, home sales and nonresident sales fit in, and what a gain actually costs.
Sources are the Arizona Revised Statutes on the legislature's website (A.R.S. 43-1022, 43-1091, 43-1092 and 43-1095), the 2021 session law that set the flat rate, the Arizona Joint Legislative Budget Committee's 2025 Tax Handbook, and two IRS pages, all read on 3 November 2026. The Arizona Department of Revenue's own website refused our automated requests (HTTP 403), so we did not read it and we state its rules only as the statutes and the Committee's handbook describe them.
The Joint Legislative Budget Committee's 2025 Tax Handbook says that beginning in tax year 2023 the state imposes a single tax rate of 2.5% on the taxable income of all filers. The statute behind it, A.R.S. 43-1011 as amended by Laws 2021, chapter 412, says that for the years after a notice year the tax is 2.5% of taxable income. The handbook covers tax year 2025, and we found no source in our reading that sets a different rate for 2026, so treat 2.5% as the rate in force and check it before planning a later sale.
Because the rate is a single rate, a large gain does not push you into a higher Arizona bracket the way it can on the federal return.
Arizona's 2026 session passed a federal tax conformity package (S.B. 4168, enacted-bill fact sheet on the legislature's website, read 3 November 2026). It adds or changes deductions, subtractions and credits for tax years from 2025 and 2026, but the fact sheet lists no change to the 2.5% rate or to the long-term capital gain subtraction. We did not read the full bill text, so treat that as what the summary shows, not a full review.
The handbook says the starting point for the Arizona individual income tax is the federal adjusted gross income, and describes Arizona gross income as equivalent to the taxpayer's federal adjusted gross income, including a taxpayer's capital gain or loss. A gain you report on your federal return therefore flows into the Arizona return, and Arizona then applies the additions and subtractions in A.R.S. 43-1021 and 43-1022 before it applies the 2.5% rate.
A.R.S. 43-1022, paragraph 22, lets you subtract an amount of net long-term capital gain included in federal adjusted gross income that is derived from an investment in an asset acquired after December 31, 2011. For taxable years beginning after December 31, 2014 the amount is twenty-five percent of the net long-term capital gain. The handbook describes the same rule: gains on assets bought before 2012 are not affected.
Two narrower subtractions also exist in the same section: one for net capital gain derived from an investment in a qualified small business as determined by the Arizona commerce authority, and one for net capital gain from exchanging one kind of legal tender for another. We did not read the eligibility rules behind them, so ask the Department or a preparer if either may apply.
This table is our arithmetic, not an official calculation. It shows the Arizona tax on the gain alone at 2.5%, with and without the 25% subtraction, ignoring deductions, exemptions and credits.
| Net capital gain | Tax if no subtraction applies (short-term or pre-2012 asset) | Tax with the 25% subtraction (qualifying long-term gain) | Difference |
|---|---|---|---|
| $10,000 | $250.00 | $187.50 | $62.50 |
| $50,000 | $1,250.00 | $937.50 | $312.50 |
| $100,000 | $2,500.00 | $1,875.00 | $625.00 |
| $500,000 | $12,500.00 | $9,375.00 | $3,125.00 |
Worked example (ours): you sell shares bought in 2020 for a $50,000 net long-term gain. The subtraction is 25% of $50,000, or $12,500, leaving $37,500 of the gain to tax. At 2.5% that is $937.50, against $1,250.00 if no subtraction applied, a saving of $312.50. Your return will also include your other income, deductions and exemptions.
The handbook explains that certain income is called Arizona small business income and is taxed at an alternative rate, which is 2.5% for tax year 2023 and thereafter. It lists capital gains and losses from the taxable disposition of an ownership interest in any entity other than a publicly traded company, or of capital assets used in connection with a trade or business, among the sources that can qualify. The rate matches the ordinary individual rate, so the rate is the same either way; we did not read how the 25% subtraction interacts with this category, so confirm it if you are selling a private business.
Because Arizona starts from federal adjusted gross income and that figure includes capital gains and losses, we read the federal netting rules as already reflected in your starting figure. IRS Topic 409 says that if your capital losses exceed your capital gains, the loss you can claim to lower your income is the lesser of $3,000 ($1,500 if married filing separately) or your total net loss, and that a larger net loss can be carried forward to later years. We did not find a separate Arizona loss limit in the pages we read, and A.R.S. 43-1022 contains a narrow subtraction tied to loss carryovers in certain claim-of-right situations that we have not analysed.
We found no separate Arizona home sale rule. IRS Topic 701 says you may qualify to exclude up to $250,000 of the gain on the sale of your main home from your income, or up to $500,000 if you file a joint return with your spouse. Because Arizona starts from federal adjusted gross income, we read the effect as leaving only the gain above the exclusion in the Arizona return, where the 2.5% rate (and the 25% subtraction, if the home was acquired after 31 December 2011 and the gain is long-term) applies; the sources we read do not say this in so many words. See our home sale capital gains guide for the federal test.
A.R.S. 43-1091 says that for nonresidents Arizona gross income includes only that portion of federal adjusted gross income which represents income from sources within the state. For gains the key rule is A.R.S. 43-1092: income of nonresidents from stocks, bonds, notes or other intangible personal property is not income from sources within Arizona unless the property has acquired a business situs in Arizona. The exception is a nonresident who buys or sells such property in Arizona, or places orders with brokers in Arizona, so regularly, systematically and continuously as to constitute doing business in the state; the profit is then Arizona-source income. The statute adds that transactions over a period of less than six months are in no case deemed to constitute doing business.
A.R.S. 43-1095 says a nonresident's standard or itemized deductions are allowed in the percentage that the taxpayer's Arizona gross income is of the federal adjusted gross income. The statutes we read do not spell out the rule for Arizona real estate. The handbook notes that Laws 2019, chapter 272 requires licensed escrow agents to file an information return with the Department of Revenue for sales of real property located in Arizona, so a sale of Arizona property is reported to the state. We did not read the Department's instructions for part-year residents, so we state no rule for them.
Senate Bill 1331 (2025 session) proposed applying the 25% subtraction to all assets for tax years beginning 1 January 2026, not only those acquired after 2011, according to the legislature's fact sheet. The text of A.R.S. 43-1022 that we read on 3 November 2026 still says assets acquired after December 31, 2011, so we treat the change as not in force. Check the legislature's site before relying on either version.
CountryTaxCalc.com is reader-supported. When you use our partner links, we may earn a commission at no cost to you. This helps us provide free tax calculators and comparison tools.Learn more about our affiliate partnerships
★ 4.8verified reviews · 3,758 reviews
Moving between states means a complex multi-state tax return. Taxhub matches you with a real CPA via video call — average cost $325. Rated 4.8★ by 3,700+ clients.
⚠ Not for simple single-state returns. Free filing is fine for straightforward W-2 situations.
Get Matched With a CPA →Interested in reaching this audience? Advertise on CountryTaxCalc →