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Most states do not have a separate line on tax returns for "capital gains," as such. Instead, any income you make outside of normal payroll is calculated at the ordinary income rate. Please consult your tax adviser for further information.
There are investments that offer tax benefits at the state level, if the investor is interested in holding tax-exempt municipal bonds in the state in which he resides. Municipal bonds originating in the state in which you live are free of state taxes.
The IRS allows filers to deduct any state taxes paid during the filing year.
The IRS requires Form 1040, Schedule A to itemize your deductions, including any state tax payments.
Nearly all states impose some sort of capital tax (although it might be called something else) on income generated from investments. The tax imposed may be as high as 13.5% (New York). Taxes paid on gains must be considered when investors compute their real rate of return on their investments.
What states have no income tax or capital gains tax?
The nine states with no state income tax or capital gains tax are Washington, Nevada, Alaska, Wyoming, South Dakota, Texas, Tennessee, Florida, and New Hampshire.
California residents are responsible for investments that create approximately 13% of all capital gains. Investments made by New York residents are responsible for 12.5% of all capital gains.