Guide to MN Capital Gains Tax in 2025
- Mitch Zweber
- Sep 10
- 15 min read
Updated: Sep 29
How Much Is Capital Gains Tax in MN?
Minnesota taxes net capital gains as part of your regular income.
Net capital gains means your total capital gains minus any capital losses. If your losses are greater than your gains, you can use up to $3,000 of those losses per year to reduce other income and carry forward the rest to future years.
Your net capital gains are added to your taxable income and taxed at the same Minnesota income tax rates that apply to wages and salaries: 5.35%, 6.08%, 7.85%, and 9.85%, depending on your income bracket.
Minnesota also follows certain federal exclusions. For example:
Sale of your primary home: You can usually exclude up to $250,000 of gain ($500,000 for married couples filing jointly) if you’ve lived in the home at least 2 of the last 5 years.
Qualified small business stock: Some or all of the gain from selling stock in certain small businesses may be excluded under federal rules, and Minnesota recognizes those same exclusions.
In short, Minnesota treats capital gains no differently than regular income, which means there is no special state capital gains tax rate.
Everything is taxed as ordinary income. You pay the same tax rates, but you calculate them on a net basis, after subtracting any losses and federal exclusions.
Article by Mitch Zweber, Senior Wealth Manager
Mitch is a financial professional focusing on portfolio management, retirement planning, estate planning, and goal funding. His approach to financial planning is holistic, addressing each client's needs, goals, and aspirations to build an individualized plan to pursue financial success.
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Taxes Are Often Your Biggest Expense
As a financial advisor, one of the biggest concerns I hear from highly affluent clients is how to handle capital gains taxes.
Taxes are often the largest expense people face, and while they can’t be avoided, they can be managed with proper planning and strategy. In this post, I'll cover some of the key topics I discuss with clients when it comes to capital gains in Minnesota and beyond.
Table of Contents
Being Prepared Is the Most Critical Step
The most important thing about capital gains is being prepared so they don’t come as a shock.
At some point, whether from selling investments, real estate, or even a business, you’ll likely face a taxable gain. Most people move homes several times in their lives, so it comes up more often than they expect.
The real stress happens when someone gets hit with a large, unexpected tax bill and only has a short window to come up with the funds.
Nobody complains about a refund, but the surprise of owing money can disrupt financial plans and create frustration.
That’s why awareness and planning are key: when you understand how gains work and what might trigger them, you can make thoughtful decisions instead of scrambling at tax time.
What Are Capital Gains?
Capital gains are the profits you make when you sell a capital asset, such as stocks, bonds, real estate, or a business, for more than you paid for it.
If you sold a capital asset for less than the purchase price, then you would have a capital loss.
For example, if you buy a stock for $10 and later sell it for $12, you’ve realized a $2 gain.
There are two types of capital gains:
Short-term capital gains: Assets held for less than 12 months. These are taxed at ordinary income rates.
Long-term capital gains: Assets held for 12 months and one day or longer. These are taxed at lower, preferential rates depending on your income bracket—anywhere from 0% up to 20%. Most Minnesotans fall into the 0% or 15% category.
Minnesota does not give special tax treatment to long-term capital gains. Unlike federal law, Minnesota taxes both short- and long-term capital gains the same way, as part of your regular state income tax.
Short- and Long-Term Capital Gains and Losses
Type | Definition | Federal Tax Treatment | MN Tax Treatment |
Short-Term Capital Gains | Profit from selling an asset held 1 year or less | Taxed as ordinary income at regular federal income tax rates | Taxed as ordinary income (no special rate) |
Long-Term Capital Gains | Profit from selling an asset held for more than 1 year | Taxed at lower, preferential federal rates | Taxed as ordinary income (no special rate) |
Capital Losses | Loss from selling an asset for less than what you paid | Can offset capital gains; up to $3,000 ($1,500 if married filing separately) can reduce other income per year | Same rules apply—losses offset gains and may reduce taxable income up to the federal limits |
Minnesota Capital Gains Tax Rates (2025)
When calculating your total capital gains tax liability, make sure you include the federal rate as well as the MN capital gains tax. The table below shows the MN capital gains tax rate on net capital gains.
Note that Minnesota does not have separate brackets for head of household or married filing separately, the way federal law does. Everyone who is not married and filing jointly is essentially taxed under the single filer brackets.
Taxable Income - Single Filers | Taxable Income - Married Filing Jointly | MN Tax Rate on Net Capital Gains |
Up to $32,570 | Up to $47,620 | 5.35% |
$32,571 – $106,990 | $47,621 – $189,180 | 6.80% |
$106,991 – $198,630 | $189,181 – $330,410 | 7.85% |
Over $198,630 | Over $330,410 | 9.85% |
Key Points
These tax brackets apply to taxable income, which already includes net capital gains (gains minus losses).
Minnesota does not have a lower tax rate for long-term gains. Both short- and long-term gains are taxed at these rates.
Federal rules for exclusions (like selling your home or qualified small business stock) also apply in Minnesota.
Federal Capital Gains Tax Rates (2025)
Filing Status | Taxable Income (for Long-Term Gains) | Federal Tax Rate on Long-Term Gains |
Single | Up to $48,350 | 0% |
$48,351 to $533,400 | 15% | |
$533,401 or more | 20% | |
Married Filing Jointly | Up to $96,700 | 0% |
$96,701 to $600,050 | 15% | |
$600,051 or more | 20% | |
Head of Household | Up to $64,750 | 0% |
$64,751 to $566,700 | 15% | |
$566,701 or more | 20% | |
Married Filing Separately | Up to $48,350 | 0% |
$48,350 to $300,000 | 15% | |
$300,001 or more | 20% |
Sources: Kiplinger, Nerd Wallet, IRS Topic No. 409
Minnesota’s New 1% Investment Income Surtax
Starting with the 2024 tax year, Minnesota added an extra 1% tax on very high levels of investment income.
This surtax applies when your net investment income goes over $1 million in a year. Net investment income includes dividends, interest, and capital gains.
For example, if your net investment income is $1.2 million, the extra 1% tax only applies to the $200,000 above the $1 million threshold. While this may not apply to most investors in Minnesota, if you're a business owner
Selling a business, property, or large stock holding for a $1M+ gain in one year would trigger it, even without a large ongoing portfolio.
How this relates to Minnesota capital gains tax:
Minnesota’s new 1% net investment income surtax (starting in 2024) applies to a broad category of investment income.
This category includes capital gains (both short-term and long-term), along with other investment income, such as dividends, interest, annuities, and rents.
The surtax is triggered only if your total net investment income for the year is more than $1 million.
In short, this surtax is not a separate capital gains tax, but since capital gains are part of net investment income, the surtax definitely affects anyone with very large capital gains.
How Do IRAs and Trust Accounts Handle Gains?
Within an IRA or Roth IRA, trades are sheltered from capital gains taxes.
The tax impact only occurs when you take a distribution. In contrast, individual accounts or trust-based accounts realize gains and losses when assets are sold.
This is why strategies like tax-loss harvesting can be useful. If you have investments that have lost value, you can sell them to offset gains elsewhere. While no one hopes for losses, using them strategically can help reduce capital gains tax owed in a given year.
What Strategies Can Help Manage Capital Gains?
First, let’s remember that gains aren't bad.
If you’re realizing capital gains, it means you've made money, which is a good thing. In addition, you can’t avoid capital gains tax completely. However, you can plan ahead to reduce the amount you pay.
The right approach depends on the source of your gains—whether they come from stocks, real estate, or selling a business. The best way to manage them is with a clear plan and guidance from someone experienced in Minnesota tax planning.
Your financial advisor and accountant should be helping you with your tax planning and strategy each year.
At 360, we review capital gains with clients every year. We often look at timing sales toward the end of the year, when income levels are clearer, to potentially help minimize the tax impact.
These are the questions you should be discussing with your financial advisor:
How are you going to realize capital gains?
When are you going to realize them?
How much are you going to realize?
Several planning strategies may be applicable to your situation.
General investment strategies:
Tax loss harvesting: In years when some investments haven’t performed well, you can sell those at a loss to offset gains from other investments. This reduces your taxable capital gains and lowers your overall tax bill.
Municipal bonds: Interest from municipal bonds, especially those issued in Minnesota, is often exempt from state and, in some cases, federal taxes. This can help reduce overall taxable income.
ETFs (Exchange-Traded Funds): Unlike many mutual funds, ETFs rarely distribute annual capital gains. This gives you more control over when you realize gains and owe tax
Timing sales: Choosing when to sell assets matters. For example, selling in a lower-income year or pairing gains with losses (“tax-loss harvesting”) can reduce your tax bill.
Traditional IRAs: There are no tax implications when you make a trade within a traditional IRA. Instead, it’s when you take a distribution from that IRA that you’ll realize the capital gains. You should plan for that. (Roth IRAs are treated differently.)
Donor-Advised Funds (DAFs): Contributing appreciated assets to a donor-advised fund avoids capital gains tax, provides an immediate deduction, and lets you direct gifts to charities over time.
Real estate strategies:
Primary residence: You may be able to exclude up to $250,000 ($500,000 if married filing jointly) of gains when selling your main home.
Investment property: In some cases, you can use a 1031 exchange to defer taxes by rolling proceeds into another property.
Business sales:
QSBC: Certain Qualified Small Business Stock (QSBS) may qualify for partial or full exclusion of gains under federal rules. Work with your financial advisor and accountant when planning the sale of your business.
Installment Sale: Structuring a sale as an installment sale can spread the gain over multiple years, potentially keeping you in lower tax brackets.
Estate planning strategies:
Step-up in basis: When assets, such as real estate, stocks, or a business, are passed on at death, the cost basis is “stepped up” to the fair market value at that time. This means heirs typically do not owe capital gains tax on appreciation that occurred during the original owner’s lifetime. This rule can save heirs significant taxes and is a key reason why estate planning often considers which assets to hold long-term.
Trusts: Trusts can help manage when and how gains are realized.
Charitable remainder trusts (CRTs): These allow you to transfer appreciated assets into a trust, avoid immediate capital gains, and receive income for a set period. After the trust term, the remainder goes to charity.
Gifting appreciated assets: Giving appreciated stock or property to family members in lower tax brackets can shift future gains to someone who will pay less tax when they sell. Charitable gifting is another option — donating appreciated securities directly to a qualified charity may avoid capital gains altogether and may provide a tax deduction.
Grantor retained annuity trusts (GRATs): Common for larger estates, GRATs can transfer appreciation on assets out of your estate and reduce future capital gains exposure for heirs.
Should My Financial Advisor Talk to Me About Capital Gains?
Yes. If your advisor isn’t talking to you about capital gains annually, that’s a red flag.
In the accumulation phase (when you’re mostly buying and holding), taxes may not come into play right away. But once you start realizing gains, having an ongoing tax strategy is critical.
In my practice, we talk about this at least once a year, often in the third or fourth quarter when clients have a clear picture of their income for the year.
If you live in Minnesota and your advisor isn’t helping you with your tax strategy, schedule a call with one of our Minneapolis financial advisors to see how we can help you.
What About Real Estate and Capital Gains?
Capital gains don’t just apply to investment portfolios—they apply to real estate too.
For example, if you buy a house for $500,000 and later sell it for $750,000, you’ve realized a $250,000 gain.
Currently, the IRS allows homeowners to exclude up to $250,000 of gains ($500,000 for married couples filing jointly) on the sale of a primary residence. Anything above that amount may be taxable.
Most people don’t run into problems until they receive an unexpected bill. Nobody complains about a refund, but a surprise tax bill can disrupt financial plans and cause stress. That’s why awareness and preparation are key.
How Do Capital Gains Work at Death?
One of the most important rules to understand is the step-up in basis.
If you own a home worth $500,000 and pass away when it’s worth $750,000, your beneficiaries inherit it with a new cost basis of $750,000. If they sell it immediately, there’s no capital gain to report. The same applies to taxable brokerage accounts.
This can make a significant difference in estate planning. It’s one reason why legacy planning often involves strategies around taxable accounts.
Does the Step-Up Apply to Retirement Accounts?
No. The step-up in basis only applies to taxable accounts like individual brokerage accounts or trust accounts. IRAs, 401(k)s, and Roth IRAs are treated differently and don’t receive a step-up.
Why Do People Use Trusts in Estate Planning?
Trusts serve multiple purposes:
Avoiding probate: In the U.S., probate is a public process. Assets held in a trust bypass probate and remain private.
Centralizing instructions: A trust can serve as a single document for distributing assets, rather than relying on multiple beneficiary designations.
Special needs planning: Trusts can be designed to provide for beneficiaries with special needs.
Irrevocable planning: Some trusts are structured so assets cannot be taken back, often for tax or asset protection purposes.
Controlling distributions: For example, if I pass away while my children are still young, I wouldn’t want them to inherit everything at 21. With a trust, I can set conditions: they might receive some assets at 30, more at 40, and so on. Trusts give you the ability to control assets even after you’re gone.
Stats on Minnesota Capital Gains Tax Reporting
In 2016, about one in five Minnesota income tax returns included a capital gain or loss.
79% of the capital gains came from married couples filing jointly. Higher-income households (over $100,000) accounted for 86% of all reported capital gains.
Among older Minnesotans, capital gains were especially common: more than 40% of taxpayers age 65 and up reported them. The tables below break down gains by income level and by age group.
Capital Gains by Income Level
Federal adjusted gross income | $ of capital gains reported (millions) | % of all gains reported | % of income consisting of gains | Average gains per return |
Less than $50,000 | $649 | 8.4% | 10.6% | $2,834 |
$50,000 to $99,999 | $431 | 5.6% | 3.5% | $3,490 |
$100,000 to $500,000 | $2,208 | 28.7% | 6.8% | $14,561 |
Over $500,000 | $4,413 | 57.3% | 17.3% | $234,437 |
All incomes | $7,702 | 100.0% | 10.1% | $14,721 |
Capital Gains by Taxpayer Age
Taxpayer Age | $ of capital gains reported (millions) | % of all gains reported | % of income consisting of gains | Average gains per return |
Less than 25 | $28 | 0.4% | 6.5% | $1,081 |
25 to 39 | $434 | 5.6% | 4.8% | $5,897 |
40 to 64 | $4,421 | 57.4% | 9.5% | $19,077 |
65 or older | $2,818 | 36.6% | 13.9% | $14,692 |
All ages | $7,702 | 100.0% | 10.1% | $14,721 |
Common Questions about MN Capital Gains Taxes
How does Minnesota tax capital gains income?
Minnesota taxes net capital gains as ordinary income. Both short-term and long-term gains are included in your taxable income and taxed at the same state income tax rates that apply to wages. For 2025, rates range from 5.35% up to 9.85%, depending on your income bracket and filing status. Minnesota does not offer a preferential long-term rate. Net capital gains are reported on your state income tax return along with other income.
How does the federal government tax capital gains income?
The federal government taxes short-term gains as ordinary income. Long-term gains are taxed at preferential rates of 0%, 15%, or 20%, depending on taxable income.
Are there higher or lower federal rates for certain kinds of income?
Yes. Long-term capital gains and qualified dividends often receive lower rates. Short-term gains, interest, and wages are taxed at higher ordinary income rates.
How much tax do I have to pay on capital gains?
It depends on your income, filing status, and whether the gain is short-term or long-term. State and federal rates both apply. Work with your financial advisor and accountant to calculate your capital gains tax liability and create a strategy to reduce capital gains tax where possible.
How do I calculate capital gains on the sale of property?
Subtract the property’s cost basis (purchase price plus improvements and costs) from the sale price. The difference is your capital gain or loss.
How are gains from the sale of the taxpayer’s main home taxed?
As of 2025, Federal and Minnesota law allow an exclusion of up to $250,000 ($500,000 for married couples filing jointly) if you lived in the home for at least 2 of the past 5 years. Gains above that amount are taxable.
Can capital losses reduce ordinary income?
Yes. Capital losses first offset capital gains. If losses exceed gains, up to $3,000 ($1,500 if married filing separately) can be reduced from ordinary income each year. Extra losses carry forward.
How can I avoid capital gains in MN?
You cannot avoid them completely, but you can reduce capital gains tax through strategies like tax-loss harvesting, using ETFs instead of mutual funds, and timing sales.
How do other states treat capital gains?
Some states have lower or no capital gains tax. Others, like Minnesota, tax gains as ordinary income. State rules vary widely.
Final Thoughts
Capital gains are an unavoidable part of growing wealth, but they don’t have to be a shock.
Everyone has to pay taxes, but with the right planning—whether it’s through the use of ETFs, tax-loss harvesting, or estate strategies like the step-up in basis—you can manage your gains in a tax-efficient way.
The key is awareness and ongoing planning. If you’re not having annual conversations with your advisor about capital gains, it’s time to start.
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About the Author
Mitch Zweber
Senior Wealth Manager
Mitch is a financial professional focusing on portfolio management,
retirement planning, estate planning, and goal funding.
His approach to financial planning is holistic, addressing each client's needs, goals, and aspirations to build an individualized plan to pursue financial success. He believes in educating clients to empower them to make confident financial decisions.
What excites Mitch most about his job is meeting new clients and contributing to their pursuit of financial success.
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About 360 Financial
360 Financial is an independent wealth management firm with a team of specialized financial advisors and financial planners. As fiduciaries, 360 Financial’s advisors provide services to business owners, entrepreneurs, and professionals. We help investors with sudden wealth, retirement planning, tax planning, estate planning, and business financial planning.
Headquartered in Minnesota, we serve investors across the US with online and in-person wealth management and financial planning services.
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The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. Investing involves risk including loss of principal. No strategy assures success or protects against loss. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk. This information is not intended to be a substitute for specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor. Contributions to a traditional IRA may be tax deductible in the contribution year, with current income tax due at withdrawal. Withdrawals prior to age 59 ½ may result in a 10% IRS penalty tax in addition to current income tax.
Municipal bonds are subject to availability and change in price. They are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise. Interest income may be subject to the alternative minimum tax. Municipal bonds are federally tax-free but other state and local taxes may apply. If sold prior to maturity, capital gains tax could apply. ETFs trade like stocks, are subject to investment risk, fluctuate in market value, and may trade at prices above or below the ETF's net asset value (NAV). Upon redemption, the value of fund shares may be worth more or less than their original cost. ETFs carry additional risks such as not being diversified, possible trading halts, and index tracking errors.
