How Pennsylvania Taxes Capital Gains
Pennsylvania taxes all capital gains — short-term and long-term — at the same flat 3.07% rate. There’s no preferential rate for long-term holdings and no distinction based on asset type. Stocks, real estate, crypto, and collectibles all get the same treatment.
There’s also no standard deduction, no personal exemptions, and no progressive brackets. Every dollar of gain is taxed at 3.07%, regardless of how much you earn. That simplicity is unusual — most states either follow the federal distinction between short-term and long-term gains or layer on their own brackets.
One critical difference from federal rules: Pennsylvania does not allow net capital losses to offset other income. You can offset capital gains with capital losses in the same year, but any remaining net loss cannot reduce your wages, self-employment income, or other income. And unlike the federal $3,000 loss carryover, Pennsylvania does not allow unused capital losses to carry forward to future years. If you have a bad year in the market, the state provides no tax relief beyond what you can net against gains in that same year.
Federal + PA Combined Example
Single filer, $80,000 salary, sells stock held over one year for a $50,000 long-term capital gain. Using the standard deduction ($16,100 for 2026):
Federal taxes on the gain:
- Taxable ordinary income after deduction: $80,000 − $16,100 = $63,900
- LTCG stacks on top of ordinary income: $63,900 to $113,900
- The 0% LTCG bracket ends at $49,450 (2026 single) — already exceeded by ordinary income
- The 15% bracket runs from $49,450 to $545,500 — all $50,000 fits here
- Federal LTCG tax: $50,000 × 15% = $7,500
Pennsylvania tax on the gain:
- $50,000 × 3.07% = $1,535
Combined capital gains tax: $9,035 — an effective rate of 18.1% on the gain. No NIIT applies because MAGI ($130,000) is below the $200,000 single threshold.
At $250,000 salary with the same $50,000 gain, NIIT kicks in: MAGI of $300,000 exceeds the $200,000 threshold by $100,000, so the full $50,000 gain is subject to the 3.8% surtax — adding $1,900 and pushing the combined rate to 21.9%.
How PA Compares to Neighboring States
Pennsylvania’s 3.07% is among the lowest flat rates in the region. Here’s the marginal state tax on $50,000 in long-term capital gains for a single filer with $80,000 ordinary income:
- Pennsylvania — $1,535 (flat 3.07%)
- New Jersey — ~$2,950 (6.37% marginal bracket at this income)
- New York — ~$2,900 (5.85%–6.25% brackets)
- Maryland — ~$2,400 (4.75% bracket, plus ~3% county tax on top)
- Delaware — ~$2,850 (5.5%–6.6% brackets)
- Ohio — ~$1,525 (3.5% bracket after exempt threshold)
Only Ohio comes close. New Jersey, New York, and Maryland all roughly double Pennsylvania’s state-level cost on capital gains. For a $200,000 gain, the difference between PA and NJ could exceed $10,000 in state tax alone.
When the NIIT Hits
The 3.8% Net Investment Income Tax applies on top of both federal and state capital gains taxes. It’s based on the lesser of your net investment income or the amount your MAGI exceeds the threshold:
- Single / Head of Household: $200,000
- Married Filing Jointly: $250,000
- Married Filing Separately: $125,000
These thresholds are not indexed for inflation — they haven’t changed since 2013. A couple with $200,000 in combined wages and a $100,000 gain has MAGI of $300,000, putting $50,000 subject to NIIT. That’s $1,900 in additional federal tax on top of the 15% LTCG rate and PA’s 3.07%.
Use the NIIT Calculator to see exactly how much you’d owe. At higher incomes, the NIIT can push total effective rates above 25%.
Tax-Loss Harvesting in Pennsylvania
Tax-loss harvesting — selling losing positions to offset gains — works at both the federal and state level, but Pennsylvania’s rules limit its usefulness:
- Federal: losses offset gains dollar-for-dollar, and up to $3,000 in net losses can reduce ordinary income. Excess losses carry forward indefinitely.
- Pennsylvania: losses offset gains within the same year only. No deduction against other income. No carryforward.
This means timing matters more in PA. If you realize a large gain in December but plan to harvest losses in January, those losses won’t offset the PA tax on last year’s gain. You need to realize gains and losses in the same calendar year for PA purposes.
One important difference: Pennsylvania does not follow the federal wash sale rule. Federally, the wash sale rule disallows a loss if you repurchase substantially identical securities within 30 days. For PA purposes, every transaction is treated as separate and independent — a loss disallowed federally as a wash sale can still be claimed on your PA return. This means your PA cost basis may differ from your federal adjusted basis when wash sales occur, so active traders need to track both separately.
Use the Tax-Loss Harvesting Calculator to model the federal benefit of a planned harvest, and add the 3.07% PA savings on any losses you can use in the same year.
Real Estate Capital Gains
Pennsylvania taxes real estate gains at the same 3.07% rate, but its principal residence exclusion is more generous than the federal one. Federally, IRC §121 caps the exclusion at $250,000 ($500,000 MFJ). Pennsylvania has its own rule under 61 PA Code §103.13(h) with the same 2-of-5-year ownership and use test and the same once-every-2-years frequency limit — but no dollar cap. If you qualify, the entire gain is excluded from PA tax, regardless of amount.
This matters most on high-value homes. A couple selling with $800,000 of gain excludes only $500,000 federally and owes federal tax on $300,000. For PA purposes, the full $800,000 is excluded — saving $24,560 in state tax (3.07% × $800,000) that many PA homeowners don’t realize they’re entitled to. If part of the home was used for business or rental, only the residential portion qualifies for the PA exclusion.
If you sell a rental or investment property (no residence exclusion), the gain is fully taxable at both federal and state levels. Depreciation recapture (Section 1250) is taxed at 25% federally, and at 3.07% for PA. The Home Sale Exclusion Calculator models the federal side; for PA, the entire qualifying residence gain is excluded.
One PA-specific consideration for real estate investors: the 2% Philadelphia realty transfer tax (split buyer/seller) applies on property sales within the city, on top of the 1% state transfer tax. That’s a transaction cost, not a capital gains tax, but it affects net proceeds.
Local Taxes and Capital Gains
Pennsylvania’s local earned income taxes — typically 1% to 3.9% depending on your municipality — generally do not apply to investment capital gains. Local taxes cover wages, salaries, commissions, and net profits from a business. Passive investment income like stock sales, dividends, and interest is excluded.
The exception is Philadelphia, where the city wage tax (3.75% for residents, 3.44% for non-residents in 2025) applies to earnings but not to investment income. However, net profits from an active trade or business conducted within Philadelphia are subject to the Business Income & Receipts Tax (BIRT), which could include gains from certain business asset sales.
For most W-2 employees and passive investors, the total PA tax on capital gains is just the flat 3.07% state rate — no local add-on.
Short-Term vs. Long-Term: PA Doesn’t Care, but the Feds Do
Pennsylvania treats all gains identically, so the holding period only matters for federal purposes:
| Short-Term (<1 year) | Long-Term (1+ year) | |
|---|---|---|
| Federal rate | 10%–37% (ordinary brackets) | 0%/15%/20% + possible 3.8% NIIT |
| PA rate | 3.07% | 3.07% |
| Combined max | 40.07% | 26.87% |
At $80,000 salary (2026, single, standard deduction), a $50,000 short-term gain stacks on top of your $63,900 taxable income — pushing you from the 22% bracket into the 24% bracket at $105,700. The federal tax on the gain is $11,164 (not a flat 22%), plus $1,535 in PA tax — $12,699 total (25.4% effective). The same gain held long-term: $7,500 + $1,535 = $9,035 (18.1% effective). Holding one extra day past the one-year mark saves $3,664 in this scenario.
The federal savings from long-term treatment are substantial. PA’s flat rate means the state cost is identical either way — the entire incentive to hold long-term comes from the federal side.