Does Pennsylvania Tax Capital Gains? Rate, Basis, and Losses

The Pennsylvania capital gains tax is a flat 3.07% on the net gain, applied the same way whether you held the asset for six months or sixty years.¹ There is no separate capital gains bracket, no preferential long-term rate, and no adjustment for your total income or filing status. Gains are taxed as one of the eight classes of personal income, and the rate has held since 2004.

What the 3.07% Rate Covers

The flat rate applies to every dollar of taxable gain from selling stocks, bonds, real estate, business interests, and other property. Pennsylvania does not mirror the federal split between short-term and long-term gains, so timing your sale to cross the one-year mark buys you nothing at the state level.

One piece of good news for most Pennsylvanians: capital gains are not subject to local earned income tax. The local EIT return instructions list capital gains as non-taxable, and municipalities and school districts get no share of your investment gains.² The 3.07% is the whole state and local bill.

Selling Your Primary Home

If the property was your principal residence, the full gain is generally exempt from Pennsylvania personal income tax, with no dollar cap.³ That is more generous than the federal rule, which caps the exclusion at $250,000 for single filers and $500,000 for married couples. In Pennsylvania, a $600,000 gain on your home can be fully excluded.

The catch is mixed use. If part of the property served as a rental or business space, the portion of the gain tied to that use is taxable. The worksheet with PA Schedule 19 handles the split. When the entire gain qualifies for the exclusion, you don’t need to file PA Schedule D for that sale.

Cost Basis: Where Pennsylvania Diverges From Federal

Your taxable gain is the sale price minus your cost basis, which is what you paid plus improvements and selling costs. Pennsylvania mostly tracks federal basis concepts, but a few departures can change what you owe.

Inherited Property

Property you inherit generally gets a stepped-up basis to its fair market value on the date of death.⁴ But there is a trap that catches many surviving spouses: the step-up does not apply to property received as a surviving joint tenant with right of survivorship, or as a surviving spouse for property held as tenants by the entireties. If you owned your home jointly with a spouse who has died, your Pennsylvania basis stays at the original purchase price even though the federal basis steps up. Pennsylvania also does not recognize the federal alternative valuation date six months after death.

Gifted Property

Gifts carry over the donor’s basis.⁵ If a relative gives you stock they bought for $5,000, your Pennsylvania basis is $5,000, not the market value at the time of the gift.

Property Owned Since Before June 1, 1971

Pennsylvania’s personal income tax began on June 1, 1971, and the state only taxes gains accruing after that date. For older property, you prorate: multiply the total gain by the ratio of full months held after June 1, 1971, over the total holding period in months.⁵ Long-held family land is where this most often shows up.

Losses Are Treated Harshly

Pennsylvania’s loss rules are far stricter than the federal ones, and this is where planning matters most. The rules to know:

A capital loss can offset a capital gain, but only within the same class of income in the same tax year. A stock loss cannot reduce wages, rental income, or any other class.⁴
There is no carryover. Losses that exceed gains in a year simply disappear; you cannot bring them into next year’s return.
Spouses cannot offset each other’s gains and losses, even on a joint return.
Losses on personal-use property (your car, your furniture) are ignored entirely. Only losses on property held for investment or profit count.³

The practical effect is that you have to pair gains and losses inside a single tax year to get any Pennsylvania benefit. Selling the winner this year and waiting until January to sell the loser wipes out the offset.

Non-Residents Selling Pennsylvania Property

Live somewhere else? If you sell property located in Pennsylvania, the gain is Pennsylvania-source income taxed at the same 3.07%.⁶ The state requires payors to withhold 3.07% on non-wage Pennsylvania-source income paid to non-residents, including real estate proceeds, though withholding is optional when total payments for the year are under $5,000.⁷ Non-residents file either the PA-40 NRC or a standard PA-40 with Schedule D.

When You Have to Pay Estimated Tax

Nobody withholds tax from a stock sale or a real estate closing, so a big gain can produce both a lump-sum bill and an underpayment penalty. For 2026, Pennsylvania requires quarterly estimated payments if you expect to owe at least $430 after withholding and credits, with the threshold triggered at $14,000 of income not subject to employer withholding.⁸

If you sell mid-year, the estimated payment is due in the quarter you received the income. The underpayment penalty runs as interest on each late installment through the filing deadline, and it applies even if your final return shows an overpayment.

Filing on PA Schedule D

You report gains and losses on PA Schedule D, filed with your PA-40.⁹ For each transaction, list the sale price, cost basis, and acquisition and sale dates. The net total flows to Line 5 of the PA-40. Use Pennsylvania basis figures, not the numbers from your federal Schedule D, since the two can differ. Brokerage summaries of exchange-traded stock and bond sales can substitute for listing each trade, but every other disposition must be reported individually. File Schedule D even if the only transaction produced a loss.

1
Department of Revenue | Commonwealth of Pennsylvania. Personal Income Tax Rates
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DCED. Taxpayer Annual Local Earned Income Tax Return Instructions
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Department of Revenue | Commonwealth of Pennsylvania. Net Gains (Losses) From the Sale, Exchange, or Disposition of Property
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pa.gov. Pennsylvania Personal Income Tax Guide – Net Gains (Losses) From the Sale, Exchange, or Disposition of Property
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Cornell Law School. 61 Pa Code 103.13 – Net Gains or Income From Disposition of Property
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Cornell Law School. 61 Pa Code 109.1 – Taxable Income of Nonresident Individuals
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Department of Revenue | Commonwealth of Pennsylvania. Nonresident Withholding
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pa.gov. 2026 Instructions for Estimating PA Personal Income Tax – For Individuals Only
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PA.gov. 2025 PA Schedule D – Sale, Exchange, or Disposition of Property