The Challenges of Long-Term Capital Gains Taxes Across Various U.S. States

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“Explore the top ten worst states for long-term investors based on high capital gains taxes. Understand the tax burdens in states like California, New York, and Minnesota, and learn how these taxes can affect your investment returns. Essential reading for anyone looking to optimize their investment strategies in the face of challenging tax environments.”

Capital Gains Taxes
Capital Gains Taxes

Investing is a common strategy for building wealth, yet it is not without its financial obligations, notably in the form of capital gains taxes. While federal taxes on long-term capital gains (assets held for more than a year) are a well-known burden, state-level taxes can significantly compound this financial strain, especially in certain states. This article delves into the complexities of state capital gains taxes and identifies some of the least favorable states for investors, particularly those dealing with substantial investment returns.

Understanding Capital Gains Taxes

Capital gains taxes are levied on the profit made from selling assets like stocks, bonds, or real estate, provided these assets are held for a period longer than a year. While these taxes are a federal certainty, most states also impose their own levies, which can vary widely and impact the overall tax burden on gains. High tax rates can deter investment by reducing the net returns that investors earn.

States with the Highest Long-Term Capital Gains Taxes

Several states, notorious for their high tax rates, pose particular challenges for investors. These states include California, New York, Minnesota, New Jersey, Washington D.C., Oregon, Massachusetts, Vermont, Hawaii, and Maine. Here’s a closer look at how these states stand out:

California: A Taxing Scenario for Wealthy Investors

California tops the list with a staggering long-term capital gains tax rate of 13.3% on incomes exceeding $1 million. This high tax burden, coupled with an additional 1.1% payroll tax on the state’s highest earners, makes California one of the least favorable environments for affluent investors.

New York: High Rates for High Earners

Following California, New York imposes a 10.90% tax rate on long-term capital gains for incomes reaching $25 million. However, even lower thresholds are subject to significant taxes, with incomes just over $21,400 being taxed at rates starting from 6.21%.

Minnesota: Uniform Tax Treatment

In Minnesota, long-term capital gains are taxed at the same rate as short-term gains and ordinary income, peaking at 10.85% for incomes above $1 million, which includes an additional 1% tax on net investment income.

New Jersey and Washington, D.C.: Comparable Burdens

Both New Jersey and Washington, D.C. have a high tax rate of 10.75% on capital gains for million-dollar incomes. However, they also impose considerable taxes on significantly lower income levels, creating a heavy tax burden across various earning brackets.

Oregon: Less than 10% but Still Daunting

Oregon’s tax rate stands at 9.9% for single filers earning over $125,000. Although slightly less than 10%, the high threshold levels and the minimum tax rate of 6.75% for relatively low incomes make it a challenging state for investors.

Massachusetts: The Millionaire Tax

Massachusetts imposes a notable surtax, resulting in a 9% tax rate on millionaires. This rate can jump to 12.5% for short-term gains, reflecting a significant tax burden for high-earning investors.

Vermont and Hawaii: Moderate but Notable

Vermont and Hawaii offer slightly more moderate rates at 8.75% and 7.25%, respectively, but still impose higher taxes compared to many other states, particularly for lower income brackets.

Maine: Uniformity in Taxation

Like Minnesota, Maine taxes long-term gains at the same rate as earned income, with a top rate of 7.15%, not providing any tax relief for lower investment gains.

The Impact of High Capital Gains Taxes

High capital gains taxes can discourage investment by diminishing the returns that investors count on for their financial growth and stability. This can have broader economic implications by potentially slowing investment in key sectors like real estate and equities. Investors must navigate these tax waters carefully, often requiring detailed tax planning and consultation to mitigate the effects of these high taxes.


For potential investors, understanding the landscape of state capital gains taxes is crucial. States like California, New York, and New Jersey, among others listed, represent challenging environments due to their high tax demands on investment gains. Investors looking to maximize their returns should consider these tax implications when making investment decisions, potentially looking to more tax-friendly states or employing strategies to offset these costs. Proper financial planning and advice are indispensable in managing these taxes and ensuring that investment activities align with long-term financial goals.

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