Capital gains tax in Massachusetts runs at two main rates: 8.5% on short-term gains from assets held a year or less, and 5% on long-term gains from assets held more than a year. On top of that, a 4% surtax applies to any taxable income above $1,083,150 for the 2025 tax year, capital gains included.1Mass.gov. Massachusetts Tax Rates2Mass.gov. Massachusetts 4% Surtax on Taxable Income The rate you actually pay depends on how long you held the asset, what kind of asset it was, and whether the sale pushes your total income over the surtax threshold.
The Two Main Rates
The 8.5% short-term rate is meaningfully higher than the 5% rate that applies to wages and most other income, so the holding period matters. Assets held for one year or less produce short-term gains; assets held for more than one year produce long-term gains. The dividing line is the same as the federal rule, and Massachusetts starts from your federal adjusted gross income before making its own adjustments.3General Court of Massachusetts. Massachusetts General Laws Chapter 62 Section 1
Long-term gains are taxed at 5%, matching the state’s standard income tax rate.1Mass.gov. Massachusetts Tax Rates Keep brokerage statements and trade confirmations showing your acquisition dates. If the Department of Revenue questions a long-term classification and you can’t document the holding period, the gain gets reclassified at the higher rate.
Collectibles Are Taxed Differently
If you’re selling art, antiques, rugs, metals, gems, stamps, coins, or alcoholic beverages held as investments, the 5% long-term rate does not apply. Long-term collectibles gains are grouped with short-term gains and taxed at 8.5%, but Massachusetts allows a 50% deduction on collectibles held more than one year.4General Court of Massachusetts. Massachusetts General Laws Chapter 62 Section 2 Because only half the gain is taxed at 8.5%, the effective rate on qualifying long-term collectibles gains works out to roughly 4.25% before any surtax.
The 4% Surtax on High Incomes
Since 2023, Massachusetts has added a 4% surtax on taxable income above an annually adjusted threshold. For 2025 the threshold is $1,083,150.2Mass.gov. Massachusetts 4% Surtax on Taxable Income Capital gains count toward that total, so a one-time event like selling a business, a second home, or a concentrated stock position can push you over even if your ordinary income is well below the line.
Consider a taxpayer with $200,000 in wages who realizes $1 million in long-term capital gains in a single year. The 4% surtax applies to the portion of total taxable income above the threshold. For high-income filers, the combined state rate can reach 12.5% on short-term gains and 9% on long-term gains. Because the surtax is calculated on total taxable income rather than each income type separately, spreading a large sale across two tax years can sometimes keep you under the threshold in both.
Exemptions Worth Knowing
Sale of a Principal Residence
Massachusetts follows the federal home sale exclusion under IRC § 121. You can exclude up to $250,000 of gain on the sale of your principal residence, or $500,000 for married couples filing jointly.5Governor’s FY26 Budget Recommendation. 1.021 Exemption of Capital Gains on Home Sales You must have owned and used the home as your principal residence for at least two of the five years before the sale. For joint filers, only one spouse needs to meet both requirements.6Office of the Law Revision Counsel. 26 USC 121 – Exclusion of Gain From Sale of Principal Residence
Qualified Small Business Stock
Massachusetts also conforms to the federal exclusion for qualified small business stock (QSBS) under IRC § 1202. For stock acquired after September 27, 2010, the federal rules allow up to a 100% exclusion of eligible gains, and Massachusetts follows that treatment. The stock must come from a C corporation with aggregate gross assets under $50 million, and you must have held it for at least five years. This can matter significantly for founders and early employees at Massachusetts startups.
Investment Expenses
The federal Tax Cuts and Jobs Act suspended miscellaneous itemized deductions for investment advisory fees and similar expenses through 2025. Massachusetts did not adopt that change.7Mass.gov. Working Draft TIR – Massachusetts Conformity to Certain Provisions in Public Law No 119-21 Qualifying investment management costs may still be deductible on your state return even when they’re not deductible federally. Keep your advisor statements.
Capital Losses Are Limited More Tightly Than Federal
This is where filers get caught. Massachusetts caps the amount of combined capital losses you can deduct against interest and dividend income in a single year at $2,000.4General Court of Massachusetts. Massachusetts General Laws Chapter 62 Section 2 The federal cap on net capital losses deducted against ordinary income is $3,000. Losses first offset gains of the same character, and excess losses can cross over to offset gains in the other category.8Mass.gov. TIR 02-21 – Capital Gains and Losses – Massachusetts Tax Law Changes Whatever you can’t use in the current year carries forward.
The federal wash sale rule, which disallows a loss when you repurchase a substantially identical security within 30 days before or after the sale, reduces the loss at the federal level, and that smaller figure carries into your Massachusetts return.
Inherited Property Gets a Stepped-Up Basis
When you inherit an asset, its tax basis generally resets to the fair market value on the date of the original owner’s death.9Office of the Law Revision Counsel. 26 US Code 1014 – Basis of Property Acquired From a Decedent Massachusetts follows the federal basis rules. If a parent bought a home for $150,000 and it was worth $600,000 at their death, your basis starts at $600,000. Sell it for $625,000 and your taxable gain is $25,000, not $475,000. The same treatment applies to stocks, bonds, business interests, and most other inherited property.
Which Schedule to File
Massachusetts splits capital gains reporting across two schedules, and mixing them up is a common error.
- Schedule B covers short-term capital gains and losses, long-term gains on collectibles, pre-1996 installment sale gains, carryover short-term losses, and gains or losses from trade or business property.
- Schedule D covers long-term capital gains and losses excluding collectibles, including capital gain distributions from mutual funds and REITs.
Both feed into Form 1, the main individual income tax return.10Mass.gov. Form 1 2024 Massachusetts Instructions On Schedule D, you multiply net long-term gains by the 5% rate.11Mass.gov. Schedule D Long-Term Capital Gains and Losses Excluding Collectibles and Pre-1996 Installment Sales Federally, you’ll also complete Form 8949 for individual transactions and federal Schedule D, which flow into Form 1040. The same underlying transactions feed both systems, but the rates and rules differ.
What Late Filing or Underpayment Costs
Late filing, late payment, and failure to pay each carry a penalty of 1% of the amount owed per month, capping at 25% per violation.12General Court of Massachusetts. Massachusetts General Laws Chapter 62C Section 33 These penalties stack, so you can owe both a failure-to-file penalty and a failure-to-pay penalty on the same return. Interest also accrues on any unpaid balance until it’s paid in full.13Mass.gov. 830 CMR 62C.33.1 – Interest, Penalties, and Application of Payments
If the Department of Revenue determines a return was false, fraudulent, or filed with a willful attempt to evade tax, the Commissioner can assess up to double the tax owed on top of other penalties. Intentional evasion can also result in criminal charges.
Federal Rules That Also Affect Your Bill
Because Massachusetts starts from federal adjusted gross income, most federal capital gains rules flow through automatically. The wash sale rule is one example; the stepped-up basis at death is another. But watch the areas of non-conformity: the $2,000 state loss limit versus the $3,000 federal figure, and Massachusetts still allowing investment expense deductions the federal government suspended.
High earners should also account for the federal 3.8% Net Investment Income Tax, which applies to net investment income when modified adjusted gross income exceeds $200,000 for single filers or $250,000 for married joint filers.14Internal Revenue Service. Topic No 559 – Net Investment Income Tax It doesn’t appear on the Massachusetts return, but it adds to your total tax on the same gains. Combined with the state surtax and federal capital gains rates, someone selling a large appreciated position can face a total effective rate above 30%.