New Mexico has no separate capital gains tax. A gain is part of your federal adjusted gross income, so it is taxed at the same graduated income tax rates as wages, and the state then lets you deduct part of it. That deduction is small for most sales and large only for one kind of sale: the Department's instructions give the greater of your net capital gains up to $2,500, or 40% of up to $1,000,000 of gain from selling a business that is allocated to New Mexico.
This guide uses the New Mexico Taxation and Revenue Department's 2025 tax-year instructions for forms PIT-1, PIT-ADJ and PIT-B, its 2025 Tax Rate Table, the Governor's March 2026 release on the tax package, and two IRS pages, all read on 3 November 2026. The 2025 instructions are the latest we could read; the 2026 forms were not available to us. We could not open the statute text (the legislature's website refused our request), so every rule below is stated as the Department states it.
The 2025 PIT-ADJ instructions, line 16, say you may deduct all or part of your net capital gains reported and claimed on your federal tax return, and that you may deduct the greater of two amounts. The first is 100% of your net capital gains, not to exceed $2,500. The second is 40% of up to $1,000,000 of your net capital gain income from the sale of a business that is allocated or apportioned to New Mexico under Section 7-2-11 NMSA 1978 for the year of the deduction. The PIT-1 instructions summarise it as a deduction of up to $2,500 or 40% of up to $1,000,000 of net capital gain income from the sale of a New Mexico business.
Because 40% of $1,000,000 is $400,000, the largest deduction on the second branch is $400,000 (our arithmetic). The two amounts are alternatives, not added together.
| Type of gain | Deduction in the 2025 instructions |
|---|---|
| Long-term gain on stock, a fund or other property that is not a business sale | Net capital gain, up to $2,500 |
| Gain from selling a business allocated or apportioned to New Mexico | Greater of net capital gain up to $2,500 or 40% of up to $1,000,000 of the gain (at most $400,000) |
| Short-term gain | Not included: the Department says net capital gains do not include short-term capital gains |
The Department defines net capital gains by Section 1222(11) of the Internal Revenue Code as the excess of net long-term capital gains over short-term capital losses for the tax year. Federally, the IRS says that if you hold an asset more than one year before disposing of it the gain is long-term, and net short-term capital gains are taxed as ordinary income at graduated rates. A married couple filing separate returns may each claim only one-half of the deduction allowed on a joint return.
We read the 2025 instructions, so treat the figures as the 2025 tax-year rule. We did not read the rule that applied before 2025, so we do not describe it; if you are amending an older return, use that year's instructions.
The Department's overview says personal income tax in New Mexico starts with federal adjusted gross income from your federal return, and PIT-1 line 9 tells you to enter the federal adjusted gross income from Form 1040, line 11. A capital gain reported on your federal return is therefore already in your starting figure. You then claim the deduction on Schedule PIT-ADJ, line 16, and carry the total of your deductions and exemptions to PIT-1. The PIT-ADJ instructions add that you must not enter any amount that the schedule does not list: an unlisted item is not a valid New Mexico deduction.
We found no other New Mexico break specific to capital gains in the instructions we read, and no separate New Mexico treatment of long-term versus short-term gains apart from this deduction.
The Department says New Mexico uses a graduated-rate table and that the rates vary with filing status, income and tax year. For taxable income of $100,000 or less, the PIT-1 instructions send you to the rate tables in the Department's look-up table, which we do not reproduce here. For taxable income over $100,000 the Department's 2025 Tax Rate Table gives these computations:
| Filing status | Taxable income | Tax is |
|---|---|---|
| Single | $100,000 to $210,000 | $4,356 plus 4.9% of the excess over $100,000 |
| Single | Over $210,000 | $9,746 plus 5.9% of the excess over $210,000 |
| Married filing jointly | $100,000 to $315,000 | $4,087 plus 4.9% of the excess over $100,000 |
| Married filing jointly | Over $315,000 | $14,622 plus 5.9% of the excess over $315,000 |
| Married filing separately | $100,000 to $157,500 | $4,492 plus 4.9% of the excess over $100,000 |
| Married filing separately | Over $157,500 | $7,310 plus 5.9% of the excess over $157,500 |
| Head of household | $100,000 to $315,000 | $4,087 plus 4.9% of the excess over $100,000 |
| Head of household | Over $315,000 | $14,622 plus 5.9% of the excess over $315,000 |
These are the 2025 tax-year figures. We could not read the Department's current rate page (it did not load as text) or the 2026 tax table, so check the 2026 table when the Department publishes it before planning a 2026 sale.
This worked example is our own arithmetic, not a Department figure. It assumes a single filer with $120,000 of New Mexico taxable income before any gain, uses the Department's 2025 computation table above, and rounds to the nearest dollar. On $120,000 the tax is $4,356 plus 4.9% of $20,000, which is $5,336. The table shows the extra tax from adding the gain after its deduction.
| Gain | Amount | Deduction | Taxable income after gain | Extra New Mexico tax |
|---|---|---|---|---|
| Long-term gain on stock, not a business sale | $100,000 | $2,500 | $217,500 | $4,853 |
| Business sale gain that qualifies for the 40% branch | $1,000,000 | $400,000 | $720,000 | $34,500 |
| Same gain if it does not qualify as a business-sale gain | $1,000,000 | $2,500 | $1,117,500 | $57,953 |
The gap between the last two rows, $23,453, is what qualifying for the business-sale branch is worth in this example. Whether a particular sale qualifies depends on the Department's wording, a business that is allocated or apportioned to New Mexico; ask the Department or a preparer if the sale is a close call.
New Mexico starts from federal adjusted gross income, so a capital loss that reduces your federal figure is already reflected in the starting point. The IRS says the excess loss you can claim against other income is the lesser of $3,000 ($1,500 if married filing separately) or your total net loss, and that a net capital loss above that limit can be carried forward to later years. We found no separate New Mexico loss rule in the instructions we read.
One New Mexico filing rule applies to large losses: if you have a combined loss of over $40,000 from federal Schedules C, D, E or F or Form 4797, the PIT-1 instructions say to attach your federal Form 1040 or 1040-SR and the schedules showing the loss.
The IRS says that if you sell your main home you may qualify to exclude up to $250,000 of the gain, or up to $500,000 on a joint return, and that you must report the sale if you cannot exclude all of the gain. Because New Mexico starts from federal adjusted gross income, gain that you exclude federally is not in your starting figure. The New Mexico pages we read do not say this in so many words, so that is our reading, not a Department statement. Any gain above the exclusion is an ordinary gain for New Mexico: it is taxed at the rates above and, as a gain on a home rather than a business sale, the instructions we read would give the $2,500 branch of the deduction.
For the Department, you are a New Mexico resident if your domicile was in New Mexico for the entire year or you were physically present in New Mexico for a total of 185 days or more during the tax year, regardless of your domicile. A part-year resident was a resident for part of the year, was not present for 185 days or more, and on December 31 was no longer domiciled in New Mexico.
A nonresident must file in New Mexico when both are true: you are required to file a federal return and you have income from any New Mexico source whatsoever. People with income inside and outside the state use Schedule PIT-B. The PIT-B instructions say gains and losses from the sale or exchange of property are allocated and apportioned by the location of the income-earning property or activity. A gain on real property located in New Mexico is allocated to New Mexico. Tangible personal property located in New Mexico at the time of sale is also allocated to New Mexico, and intangible personal property, such as stock, is allocated to New Mexico if you are a resident, a part-year resident or have a commercial domicile in New Mexico (and the income is not apportioned on line 8).
A New Mexico resident taxed by another state on income that is also taxable in New Mexico may take a credit on PIT-1, line 20, for the tax paid to the other state. The instructions we read do not say separately whether the $2,500 or 40% deduction is limited for nonresidents or part-year residents, so ask the Department about a large nonresident sale.
The Governor's office says she signed SB 151, the omnibus tax package, with the 2026 state budget on 11 March 2026, and that it does not raise any taxes on New Mexico families. Its published list of contents covers physician and local-news income tax credits and corporate income tax decoupling, and does not mention the capital gains deduction or personal income tax rates. That is the only 2026 official source we read, so it supports only a limited statement: we found no 2026 change to the deduction. The 2026 forms and instructions will confirm it.