If you are selling investments, rental property, or a business interest this year, capital gains taxes are going to be part of the conversation.

A lot of people know the federal piece vaguely. What they miss is how Ohio's rate stacks on top of that, how capital gains interact with the rest of your retirement income, and what you can actually do about it before you sell.

So let's walk through all of it.

How Ohio Taxes Capital Gains

Ohio does not separate capital gains into their own tax category. There is no "Ohio capital gains tax rate." Capital gains go onto your Ohio income tax return as ordinary income, alongside wages, pension distributions, RMDs, and everything else.

For 2026, Ohio moved to a flat rate structure:

That is it. One rate. Whether you realized $10,000 in gains or $500,000, everything above that $26,050 threshold is taxed at 2.75%.

Ohio also makes no distinction between short-term and long-term capital gains. The federal government rewards assets held longer than a year with lower rates. Ohio ignores that distinction entirely. A gain is a gain.

One thing Ohio does not tax: Social Security benefits. If you are collecting Social Security and generating capital gains in the same year, the Social Security piece will not add to your Ohio income tax bill.

Federal Capital Gains Tax Rates for 2026

The federal side is more nuanced, so let's cover it clearly.

Short-Term Capital Gains

Short-term gains are taxed as ordinary income at your regular federal brackets, the same rates that apply to wages and IRA distributions.

For most retirees already drawing Social Security and RMDs, stacking a short-term gain on top of all that can push the combined tax bill significantly higher than expected.

Long-Term Capital Gains

Hold an asset for more than a year before selling, and the federal rate drops to 0%, 15%, or 20%.

The holding period matters a lot. If you are thinking about selling appreciated stock or investment property, check the date before you sell. One extra day can move you from short-term to long-term treatment on the federal side.

Combined Ohio and Federal Capital Gains Tax Rates

Here is what most people do not see until they look at the full picture: the Ohio rate stacks directly on top of whatever federal rate applies. There is no offset.

The Net Investment Income Tax (NIIT) is a 3.8% federal surtax on investment income. It kicks in once your modified adjusted gross income exceeds $200,000 as a single filer or $250,000 as a married couple filing jointly.

A lot of our clients end up in NIIT territory in years when they sell a large position or a rental property, even if they do not think of themselves as high earners. The reason: capital gains stack on top of other income.

Say you have $180,000 of ordinary retirement income and a $100,000 long-term capital gain in the same year. Your MAGI is $280,000. That puts $30,000 above the NIIT threshold, and the 3.8% applies to that $30,000. It is manageable with the right planning, but you have to see it coming.

Capital Gains Tax on Real Estate in Ohio

Primary Residence Exclusion

If you sell the home you live in, the IRS gives you a meaningful exclusion. Single filers can exclude up to $250,000 in gains. Married couples filing jointly can exclude up to $500,000.

To qualify, you need to have owned the home and lived in it as your primary residence for at least two of the last five years before the sale. Ohio follows the federal exclusion here. Any gain excluded at the federal level is also excluded for Ohio income tax purposes.

If your gain exceeds the exclusion, the overage is taxable. Say you are a married couple who bought a home 30 years ago for $150,000 and are selling it for $750,000. Your gain is $600,000. After the $500,000 exclusion, you have $100,000 that is taxable as a long-term capital gain.

Rental Property and Depreciation Recapture

Rental property is more complicated than a primary residence sale, and the piece most people underestimate is depreciation recapture.

When you own a rental property, you deduct depreciation on the building every year against your rental income. When you sell, the IRS taxes that depreciation back at a federal rate of 25%, regardless of how long you held the property. This is called depreciation recapture.

Here is a simplified example:

This is the kind of calculation that surprises people. If you are planning to sell rental property, work through the numbers before you list.

Inherited Real Estate and the Step-Up in Basis

When you inherit real estate, your cost basis is stepped up to the fair market value of the property on the date of death.

If your parents bought a rental property for $100,000 forty years ago and it is worth $600,000 when they pass, your basis as the heir is $600,000. Sell it shortly after for $600,000 and your capital gain is zero. All of the appreciation built up during their lifetime is never taxed as a capital gain.

This is a significant reason why thinking through the structure around appreciated assets matters well before death.

1031 Exchanges

If you are selling investment or rental property and plan to buy replacement property, a 1031 exchange lets you defer capital gains by rolling the proceeds into a new property of equal or greater value.

The taxes do not disappear. They carry forward into the new property's basis. But the deferral can be valuable if you plan to hold the new property long-term or pass it to heirs who receive a stepped-up basis.

The exchange has strict timing rules. You have 45 days to identify a replacement property and 180 days to close. Miss either deadline and the exchange fails, and the full gain becomes taxable in the year of the sale.

How to Calculate Capital Gains in Ohio

The calculation follows four steps.

That last step is the one most people miss. The gain does not exist in isolation. It interacts with everything else on your return.

This is why tax planning in retirement is a year-round process. If you know a large sale is coming, model it out before the transaction closes, not in February when the 1099 arrives.

Strategies to Reduce Capital Gains Tax in Ohio

Manage Your Total Income in the Year of the Sale

For long-term capital gains, the 0% federal rate applies up to $98,900 of taxable income for married couples and $49,450 for single filers. If your income falls below those thresholds, long-term gains are taxed federally at 0%. Ohio still applies 2.75%, but the federal piece is zero.

For some retirees, particularly in their gap years before RMDs and Social Security begin, there may be room to realize capital gains at little or no federal tax cost. We run this analysis as part of our annual planning process every year.

Tax-Loss Harvesting

If you have positions in your taxable accounts sitting at a loss, those losses can offset gains. Long-term losses offset long-term gains first, then short-term gains. Short-term losses offset short-term gains first, then long-term gains.

If losses exceed gains, you can deduct up to $3,000 of net capital losses against ordinary income per year. Any excess carries forward.

Tax-loss harvesting is most valuable in years when you have realized significant gains from a sale or fund distributions. If you hold actively managed funds, you may be receiving capital gains distributions each December whether you sold anything or not. Passive index funds do not have this problem, which is one practical reason we favor them for taxable accounts.

Donate Appreciated Assets Instead of Cash

If you are charitably inclined and hold appreciated securities, donating shares directly to a charity is more efficient than selling and donating cash. When you donate shares, you avoid the capital gains on the appreciation entirely and still receive a charitable deduction for the full market value.

A donor-advised fund is a practical vehicle for this. Contribute appreciated shares in one year, take the deduction, and grant to charities over time. This is particularly useful in high-income years when the tax benefit of avoiding the gain is greatest.

Installment Sales

If you are selling a business or real estate with a large embedded gain, an installment sale lets you spread gain recognition over multiple years rather than recognizing it all at once. This can keep you below NIIT thresholds and spread the federal tax across lower brackets.

Installment sales require the buyer to agree to pay over time, and some assets cannot use this structure. But for the right situation, particularly business sales, it is worth exploring.

Time the Sale Against Other Income

Selling in a year when your income is lower, before an RMD kicks in, after a pension ends, or in the first year of retirement, can reduce the effective rate on the gain. The gain stacks on top of your other income, so reducing the base makes a real difference.

This connects directly to the retirement income planning work we do with clients. When we build the income plan for the first 10 to 15 years of retirement, we are thinking about which years have room for taxable events and which do not.

Special Situations for Ohio Retirees

The Net Investment Income Tax

The NIIT adds 3.8% on top of your federal capital gains rate once your MAGI exceeds $200,000 as a single filer or $250,000 as a married couple. It applies to the lesser of your net investment income or the amount by which your MAGI exceeds the threshold.

RMDs and Social Security do not count as investment income for NIIT, but they push your MAGI higher, which then exposes your investment income to the surtax. That is the stacking problem. It is manageable, but you have to see it coming.

New Ohio Capital Gains Deductions for 2026

Ohio introduced two new capital gains deductions starting in 2026:

• A deduction for gains from the sale of an ownership interest in a business
• A deduction for gains from investments in certain Ohio-based venture capital companies

If you are selling a business this year, the Ohio business sale deduction may reduce or eliminate the Ohio tax on your gain. The specifics depend on the structure of the sale and whether the business qualifies. Work with a CPA who knows Ohio tax law before you close.

Inherited Assets and the IRA Exception

The step-up in basis at death applies to most inherited assets. There is an exception worth knowing: assets held inside IRAs do not receive a step-up.

When your beneficiaries inherit your IRA, they inherit it at the full pre-tax value and owe ordinary income tax on every distribution, not capital gains rates.

Here is the thing. Appreciated taxable investments can be passed on with a step-up in basis and zero capital gains. The IRA cannot. Understanding which assets are best to spend first, keep, or leave behind is part of building a tax-efficient legacy plan. This is the core idea behind what we call the three tax buckets: taxable, tax-deferred, and tax-free. Each bucket behaves differently in retirement and in inheritance.

Ohio Capital Gains Tax FAQs

Does Ohio have a separate capital gains tax rate?

No. Ohio taxes capital gains as ordinary income. In 2026, the rate for income over $26,050 is a flat 2.75%. Ohio makes no distinction between short-term and long-term gains.

What is the combined capital gains tax rate in Ohio for 2026?

It depends on your total income. For most retirees in the 15% federal bracket, the combined rate is 17.75%. If the Net Investment Income Tax applies, add 3.8%, bringing the combined rate to 21.55%. At the top federal rate of 20% with NIIT, the combined rate reaches 26.55%.

Do I owe Ohio tax when I sell my home?

If you qualify for the federal primary residence exclusion, that same exclusion applies on your Ohio return. Singles can exclude up to $250,000 in gains, married couples up to $500,000, as long as the ownership and use tests are met. Gains above the exclusion are taxable at both the federal and Ohio levels.

How does capital gains income affect Social Security taxation in Ohio?

Ohio does not tax Social Security benefits. At the federal level, capital gains can increase your combined income, which may make more of your Social Security subject to federal tax. Up to 85% of your Social Security can be included in federal taxable income depending on your provisional income. If you are planning a large sale, model out the impact on Social Security taxation before you execute.

What is the best way to reduce capital gains taxes in Ohio in retirement?

There is no single answer. The right approach depends on your income in the year of the sale, whether you have offsetting losses, whether the assets can be donated, and whether you have room in lower brackets before RMDs or Social Security push income higher. In most cases, the most effective moves happen before the sale, not after.

Here's What Matters

• Ohio does not have a separate capital gains tax rate. Gains are taxed as ordinary income at a flat 2.75% on income over $26,050.
• The federal rate on long-term gains is 0%, 15%, or 20% depending on your total income. Short-term gains are taxed at ordinary income rates, which can reach 37%.
• For most Ohio retirees in the 15% federal bracket, the combined rate on long-term gains is 17.75%.
• If your modified adjusted gross income exceeds $250,000 (married filing jointly), the 3.8% Net Investment Income Tax pushes the combined rate to 26.55%.
• Capital gains interact with everything else on your return. They can push more Social Security into taxation, trigger IRMAA surcharges on Medicare, and move you into a higher federal bracket.
• The most effective strategies happen before the sale: managing income in the year of the sale, harvesting losses, donating appreciated assets, and using installment sales where appropriate.
• Ohio introduced new capital gains deductions in 2026 for business sales and venture capital investments. If you are selling a business this year, get a CPA involved before you close.
• Inherited taxable assets receive a step-up in basis. Inherited IRAs do not. The distinction matters a lot in estate planning.

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Gudorf Financial Group is a fee-only, fiduciary retirement planning firm based in Dayton, Ohio. We work with clients in the Dayton and Cincinnati area and nationwide via Zoom.