How does Arizona tax capital gains?

Arizona taxes capital gains at its flat 2.5% income tax rate. However, it allows a 25% subtraction from net long-term capital gains on assets acquired after December 31, 2011, which lowers the effective state rate on those gains.

What is the Arizona 25% long-term capital gains subtraction?

For qualifying long-term gains on assets bought after 2011, Arizona lets you subtract 25% of the net gain before applying the 2.5% rate. That makes the effective Arizona rate about 1.875% on those gains instead of the full 2.5%.

What are the federal capital gains rates?

Short-term gains are taxed as ordinary income at your marginal federal rate. Long-term gains use the 0%, 15%, or 20% brackets based on your total taxable income, plus a 3.8% Net Investment Income Tax if your income exceeds the threshold.

Does the 25% subtraction apply to short-term gains?

No. The Arizona 25% subtraction applies only to net long-term capital gains on assets acquired after 2011. Short-term gains are fully taxed at the flat 2.5% rate with no subtraction.

How accurate is this calculator?

It is a close estimate that stacks federal long-term brackets on your income and applies Arizona's flat rate with the subtraction. State and local nuances, loss carryforwards, and special asset rules can change your actual tax.

Arizona Capital Gains Tax Calculator

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Arizona taxes investment profits at its flat 2.5% income tax rate — but it sweetens the deal for long-term investors with a 25% subtraction on qualifying long-term gains from assets bought after 2011. This calculator layers federal capital gains tax (short-term ordinary or long-term 0/15/20%, plus NIIT) on top of the Arizona state tax to show your true combined bill.

How it works

The estimate combines federal and state treatment:

Federal short-term. Gains held one year or less are taxed as ordinary income, so the tool applies the marginal federal rate you enter.
Federal long-term. Gains held over a year use the 0%, 15%, or 20% brackets, stacked on top of your other taxable income to find the right rate.
Net Investment Income Tax. A federal 3.8% NIIT applies to gains when your income exceeds $200,000 single or $250,000 married filing jointly.
Arizona state tax. The flat 2.5% applies to the gain. For long-term gains, Arizona first subtracts 25% of the gain, giving an effective state rate near 1.875%.

Tips and example

Suppose you have a $20,000 long-term gain, $100,000 of other income, and file single. Federally that gain falls in the 15% bracket, so federal tax is $3,000. Arizona subtracts 25% ($5,000), taxing $15,000 at 2.5% for $375. Your combined tax is about $3,375 — an effective rate near 16.9%.

Hold assets longer than a year whenever possible: it qualifies you for both the lower federal long-term rates and Arizona’s 25% subtraction. This is an estimate; loss carryforwards, state-of-residency rules, and special asset categories can change your real liability.