Estimates only — this is not tax advice. Consult a CPA or enrolled agent before acting on these figures. The calculator does not model the alternative minimum tax, wash sales, like-kind exchanges, QSBS, installment sales, or state additions and subtractions. See what is out of scope.
Show your work — 0 steps, each with its rule and citation
How Arizona taxes a capital gain
Statutory authority: Ariz. Rev. Stat. 43-1022(22) (subtraction); Ariz. SB 1828 (55th Leg., 1st Reg. Sess., 2021)
A purchase date in 2011 decides your Arizona rate
Arizona is the only state on this site where two people with identical gains, identical income and identical filing status can owe different amounts of state tax — and the thing that separates them is when they bought the asset.
A.R.S. 43-1022(22) allows a subtraction of "an amount of any net long-term capital gain included in federal adjusted gross income for the taxable year that is derived from an investment in an asset acquired after December 31, 2011". The subtraction is 25% of that gain. Against Arizona's flat 2.5% rate, that works out at an effective 1.875% on a qualifying gain, and the full 2.5% on one that does not qualify.
The gap is a quarter of your Arizona bill. On a $200,000 gain it is the difference between $3,750 and $5,000 — not enormous in absolute terms, but entirely invisible in the single-rate tables most calculators publish, and it is the sort of thing that quietly makes a projection wrong.
Gifts and inheritances keep the original date
This is the part that catches people, and it runs in the taxpayer's favour about as often as against. The statute treats a gifted or inherited asset as acquired when the ORIGINAL owner acquired it, not when it passed to you.
So inheriting shares in 2020 that your parent bought in 2005 does not give you a post-2011 asset. The subtraction is unavailable, however recently the asset reached you. An asset bought before 2012 never qualifies, however many times it changes hands.
The mirror case is worth knowing too: an asset the original owner bought in 2015 and gifted to you last year still qualifies, because the original acquisition is what the statute measures. If you hold inherited or gifted assets, the date you need is not on your own records.
The 2.5% rate is not in the statute you would think to read
Look up A.R.S. 43-1011, the section that sets Arizona's individual income tax rates, and you will not find 2.5% anywhere in it. As published, the section ends with a graduated ladder running from 2.59% to 4.50% for "taxable years beginning from and after December 31, 2018". Read only that, and you would conclude Arizona still has brackets.
It does not. The operative rule is SB 1828, passed in 2021, whose Senate fact sheet states that it "replaces, for TYs beginning January 1, 2023, the graduated income tax rate structure with a flat tax rate of 2.5 percent of taxable income". That is the rate in force, and it is the rate this calculator uses.
The general lesson is worth stating because it applies well beyond Arizona: a statute you can read is not automatically the operative rule. Codified text lags amendment, and a calculator built only from what is easy to look up will be confidently wrong.
The subtraction is long-term only
The relief applies to net LONG-TERM capital gain. A short-term gain — an asset held a year or less — gets no subtraction at all and is taxed at the full 2.5%, exactly like wages.
That means the one-year holding line matters twice in Arizona: it decides your federal rate, which can swing from 37% to 20% or lower, and it separately decides whether a quarter of your gain escapes state tax. Both point the same way, which makes waiting past the anniversary an unusually easy decision here.
Note also that the subtraction reduces the amount Arizona taxes, not the tax itself. It is a subtraction from income, so its value is 25% of the gain multiplied by the rate — not 25% off the bill.
What Arizona does not change
Everything federal applies unchanged: the 0/15/20% long-term ladder, ordinary rates on short-term gains, the 3.8% net investment income tax, the Section 121 home-sale exclusion and Section 1250 depreciation recapture. Arizona sits on top of that.
At 2.5%, and less on qualifying long-term gains, Arizona is among the cheaper states in which to realise a gain. For most taxpayers here the state layer is a rounding note against the federal bill, and essentially all the planning leverage is federal — which is a reason to read the federal sections of the main guide rather than optimising the state number.
A worked Arizona example
Every figure below is computed by the same engine that powers the calculator above, at the moment this page was built — not typed in by hand. When the tax-year data is updated, this example updates with it.
Acquired in 2015 — the subtraction applies
A single Arizona filer earning $120,000 sells shares bought in 2015 for a $200,000 long-term gain. The asset was acquired after 31 December 2011, so 25% of the gain is subtracted before the 2.5% rate is applied.
- Taxable income after deduction
- $303,900
- Taxable gain
- $200,000
- Tax owed without the sale
- $17,570
- Tax the sale added
- $34,560
- of which net investment income tax
- $4,560
- Total federal tax
- $52,130
- Arizona state tax
- $3,750
- Effective rate on the gain
- 17.28%
Arizona taxes $150,000 of the $200,000 gain, giving an effective 1.875%. Compare the identical sale of a pre-2012 asset below.
Caveats on this example (1)
- Net investment income was derived from capital gains and qualified dividends only. Interest, non-qualified dividends, rents, royalties and passive business income inside ordinaryIncome are also net investment income under IRC 1411(c) and are not counted here.
Show the working — 14 steps, each with its citation
- Net short-term capital gain or loss for the year$0
Assets held one year or less. Taxed at ordinary rates if a net gain.
- Net long-term capital gain or loss for the year$200,000
Assets held more than one year. Eligible for the 0/15/20% rates.
- Standard deduction-$16,100
Adjusted gross income of $320,000 less $16,100.
- Taxable income$303,900
The figure the rate tables and the capital gain ceilings are both measured against.
- Ordinary income taxed at 10%$1,240
$12,400 of taxable income between $0 and $12,400.
- Ordinary income taxed at 12%$4,560
$38,000 of taxable income between $12,400 and $50,400.
- Ordinary income taxed at 22%$11,770
$53,500 of taxable income between $50,400 and $103,900.
- Ordinary income stacked below the long-term gain$103,900
Long-term gain is taxed by reference to where it sits ON TOP of $103,900 of other taxable income, not from the bottom of the rate table.
- Long-term gain taxed at 15%$30,000
Gain between the $49,450 zero-rate ceiling and the $545,500 15% ceiling.
- Net investment income tax threshold$200,000
Modified AGI of $320,000 against the $200,000 threshold for a single filer. This threshold is statutory and is not adjusted for inflation.
- Net investment income tax at 3.8%$4,560
3.8% of $120,000, the lesser of net investment income ($200,000) and the amount by which modified AGI exceeds the threshold ($120,000). Here the binding figure is the excess of modified AGI over the threshold.
- Arizona: 25% of long-term gain subtracted-$50,000
Applies to net long-term capital gain from an asset acquired AFTER 31 December 2011. Gifted and inherited assets take the original owner's acquisition date, so an asset acquired before 2012 never qualifies however it changes hands.
- Arizona income tax at 2.5%$3,750
Arizona subtracts 25% of net long-term capital gain from assets acquired AFTER 31 December 2011 (A.R.S. 43-1022(22)), and gifted or inherited assets take the original owner's acquisition date rather than the transfer date. Against the 2.5% flat rate that is an effective 1.875% on qualifying gain, but the full 2.5% on a pre-2012 asset - so two people with identical gains owe different Arizona tax depending on a purchase date. The 2.5% rate comes from SB 1828 (2021), NOT from the codified text: A.R.S. 43-1011 as published still ends with the 2019 graduated ladder.
- Total tax$55,880
$55,880 on $320,000 of total income, an effective rate of 17.46%.
The identical gain, acquired in 2010 — no subtraction
Everything is the same: same filer, same income, same $200,000 long-term gain. Only the purchase date differs — this asset was bought in 2010, before the statutory cut-off.
- Taxable income after deduction
- $303,900
- Taxable gain
- $200,000
- Tax owed without the sale
- $17,570
- Tax the sale added
- $34,560
- of which net investment income tax
- $4,560
- Total federal tax
- $52,130
- Arizona state tax
- $5,000
- Effective rate on the gain
- 17.28%
The full 2.5% applies, and the trace says explicitly why the subtraction did not. The federal figures are identical in both cases — the entire difference is a purchase date, and no single-rate state table can show it.
Caveats on this example (1)
- Net investment income was derived from capital gains and qualified dividends only. Interest, non-qualified dividends, rents, royalties and passive business income inside ordinaryIncome are also net investment income under IRC 1411(c) and are not counted here.
Show the working — 14 steps, each with its citation
- Net short-term capital gain or loss for the year$0
Assets held one year or less. Taxed at ordinary rates if a net gain.
- Net long-term capital gain or loss for the year$200,000
Assets held more than one year. Eligible for the 0/15/20% rates.
- Standard deduction-$16,100
Adjusted gross income of $320,000 less $16,100.
- Taxable income$303,900
The figure the rate tables and the capital gain ceilings are both measured against.
- Ordinary income taxed at 10%$1,240
$12,400 of taxable income between $0 and $12,400.
- Ordinary income taxed at 12%$4,560
$38,000 of taxable income between $12,400 and $50,400.
- Ordinary income taxed at 22%$11,770
$53,500 of taxable income between $50,400 and $103,900.
- Ordinary income stacked below the long-term gain$103,900
Long-term gain is taxed by reference to where it sits ON TOP of $103,900 of other taxable income, not from the bottom of the rate table.
- Long-term gain taxed at 15%$30,000
Gain between the $49,450 zero-rate ceiling and the $545,500 15% ceiling.
- Net investment income tax threshold$200,000
Modified AGI of $320,000 against the $200,000 threshold for a single filer. This threshold is statutory and is not adjusted for inflation.
- Net investment income tax at 3.8%$4,560
3.8% of $120,000, the lesser of net investment income ($200,000) and the amount by which modified AGI exceeds the threshold ($120,000). Here the binding figure is the excess of modified AGI over the threshold.
- Arizona: long-term gain subtraction does not apply$0
The gain does not meet the condition for the subtraction. Applies to net long-term capital gain from an asset acquired AFTER 31 December 2011. Gifted and inherited assets take the original owner's acquisition date, so an asset acquired before 2012 never qualifies however it changes hands.
- Arizona income tax at 2.5%$5,000
Arizona subtracts 25% of net long-term capital gain from assets acquired AFTER 31 December 2011 (A.R.S. 43-1022(22)), and gifted or inherited assets take the original owner's acquisition date rather than the transfer date. Against the 2.5% flat rate that is an effective 1.875% on qualifying gain, but the full 2.5% on a pre-2012 asset - so two people with identical gains owe different Arizona tax depending on a purchase date. The 2.5% rate comes from SB 1828 (2021), NOT from the codified text: A.R.S. 43-1011 as published still ends with the 2019 graduated ladder.
- Total tax$57,130
$57,130 on $320,000 of total income, an effective rate of 17.85%.
What this calculator does not cover for Arizona
The Arizona figure stacks your gain on your federal ordinary taxable income. Arizona computes its own taxable income with its own additions and subtractions, which are not modelled here — so treat the state number as a close approximation for a straightforward wage-and-sale situation, and as a rough one if your return carries significant state adjustments.
Full-year residency is assumed throughout. Part-year residents, non-residents, and gains sourced to property in another state all turn on rules this calculator does not model. The complete list of what is in and out of scope is on the methodology page.
Other states
- CaliforniaTaxed as ordinary income, nine brackets, plus a 1% surcharge over $1m.
- TexasNo individual income tax. Federal tax still applies in full.
- ColoradoFlat 4.40%. The old capital gain subtraction appears to be gone.
See the full 2026 capital gains guide for the federal rules that apply wherever you live — the rate ladder, the net investment income tax, the home-sale exclusion and depreciation recapture — plus every state we currently cover.