Question 1

How does Hawaii tax capital gains?

Accepted Answer

Hawaii taxes capital gains as ordinary income using its progressive income tax brackets, which include up to 12 brackets for single and married filing jointly filers, with rates ranging from 1.4% to 11%. Hawaii has one of the highest top marginal rates in the country, and there is no preferential rate for long-term capital gains at the state level.

Question 2

Is there a difference between short-term and long-term capital gains in Hawaii?

Accepted Answer

At the Hawaii state level, both short-term and long-term capital gains are generally taxed as ordinary income at the same rates. However, Hawaii does offer a preferential 7.25% rate on certain long-term capital gains for some taxpayers, though the specifics depend on the type of asset and holding period. At the federal level, long-term gains receive preferential rates of 0%, 15%, or 20%.

Question 3

Does the Net Investment Income Tax (NIIT) apply in Hawaii?

Accepted Answer

Yes. The 3.8% federal Net Investment Income Tax applies to Hawaii residents whose modified adjusted gross income exceeds $200,000 (single) or $250,000 (married filing jointly). Combined with Hawaii's top 11% state rate and the federal 20% long-term rate, high-income Hawaii residents can face a combined capital gains tax rate exceeding 34%.

Question 4

Why is Hawaii's capital gains tax so high?

Accepted Answer

Hawaii's top income tax rate of 11% is the second-highest in the nation (after California's 13.3%). The state uses this revenue to fund public services in an isolated island economy with a high cost of living. Hawaii's 12-bracket system means the top rate kicks in at relatively modest income levels, making it particularly impactful for residents with significant capital gains.

Question 5

How does Hawaii's capital gains tax compare to other states?

Accepted Answer

Hawaii's top rate of 11% on capital gains is among the highest in the country, second only to California (13.3%). It exceeds New York (10.9%), D.C. (10.75%), Minnesota (9.85%), and most other states. Nearby, there is no comparison — Hawaii is the only Pacific island state. For investors, the high state rate is a significant consideration compared to no-tax states like Nevada, Washington, or Texas.

Tax Component	Tax Amount	Effective Rate
Federal Long-Term CG Tax	$7,500	15.00%
Hawaii Capital Gains Tax	$4,125	8.25%
Total Capital Gains Tax	$11,625	23.25%

Hawaii Capital Gains Tax Calculator (2025)

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