Does New Mexico tax capital gains?

Yes, but not at a special rate. New Mexico taxes capital gains as ordinary income under its graduated brackets (1.5% to 5.9%). It then allows a capital-gains deduction equal to the greater of 1,000 dollars or 40% of your net capital gains.

How does the New Mexico capital-gains deduction work?

You deduct the greater of 1,000 dollars or 40% of your net capital gain before applying New Mexico's income tax. On a 20,000 dollar gain, the 40% deduction is 8,000 dollars, so only 12,000 is taxed by the state.

What are the federal long-term rates?

Long-term gains (assets held over one year) are taxed at 0%, 15% or 20% federally, depending on your total taxable income. The gain stacks on top of your ordinary income to determine which rate applies to each portion.

How are short-term gains taxed?

Short-term gains (held one year or less) get no preferential rate. They are taxed at your ordinary federal income tax bracket and, at the state level, as ordinary New Mexico income — though the New Mexico deduction still applies.

Does this include the net investment income tax?

No. The federal 3.8% net investment income tax (NIIT) on higher earners is not modelled here, nor is any state surtax. For large gains or high incomes, budget for NIIT on top of these figures.

New Mexico Capital Gains Tax Calculator

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Selling an investment in New Mexico triggers tax at two levels — federal and state. Federally, long-term gains enjoy the preferential 0/15/20% rates while short-term gains are taxed as ordinary income. New Mexico has no special capital-gains rate, but it softens the blow with a capital-gains deduction equal to the greater of $1,000 or 40% of your net gain. This calculator combines both layers to estimate your total tax.

How it works

The calculation stacks your gain on top of your other income, which determines the rates that apply:

Federal tax. For long-term gains, the gain is layered onto your ordinary income and taxed at 0%, 15% or 20% depending on which income band each portion falls in. Short-term gains use the ordinary federal brackets at your marginal rate.
New Mexico deduction. The state subtracts the greater of $1,000 or 40% of your net capital gain.
New Mexico tax. The remaining taxable gain is taxed at New Mexico’s graduated rates (1.5% to 5.9%), again stacked on your other income to find the right marginal rate.

Tips and notes

The 40% deduction is significant: it effectively cuts New Mexico’s top capital-gains rate from 5.9% to about 3.5% for larger gains, making the state friendlier to investors than its headline rate suggests.
Because the gain stacks on your other income, a large gain can push part of itself from the 15% federal band into the 20% band — the calculator handles this split automatically.
The federal 3.8% net investment income tax (NIIT) can apply to high earners and is not included here. Offset gains with capital losses where possible, and confirm holding periods carefully — a sale just under one year forfeits the long-term rates entirely.