Maryland capital gains tax applies to all realized gains because the state treats capital gains as ordinary income under its progressive income tax system. Maryland does not provide a special long-term capital gains rate, and county surtaxes significantly increase the total tax burden. As a result, Maryland capital gains tax is often among the highest combined state-local capital gains burdens in the Mid-Atlantic, making careful planning essential for investors and property owners in 2025.
What Are Capital Gains?
Capital gains arise when you sell a capital asset for more than your adjusted basis. Maryland uses federal rules to define capital assets and is aligned with federal calculations for recognized gain. Common capital assets include real estate, stocks, bonds, cryptocurrency, and business interests.
Two forms of gains apply:
- Realized Capital Gains: Gains recognized when an asset is sold. These are subject to both federal and Maryland tax.
- Unrealized Capital Gains: Gains that exist only on paper until the asset is sold. These are not taxable until realized.
Maryland taxes only realized gains at ordinary income tax rates.
Long-Term vs. Short-Term Capital Gains
Before Maryland applies its state and county taxes, gains are classified at the federal level based on holding period.
- Short-Term Capital Gains: Assets held 1 year or less; taxed federally at ordinary income rates.
- Long-Term Capital Gains: Assets held more than 1 year; taxed federally at 0%, 15%, or 20%.
Maryland does not differentiate between long-term and short-term gains. All gains are taxed the same at the state and county level.
Federal Capital Gains Tax Rates in 2025
Short-term gains follow the federal ordinary income brackets:
| Taxable Income (Single Filers) | Taxable Income (Married Filing Jointly) | Tax Rate |
|---|---|---|
| $0 to $11,925 | $0 to $23,850 | 10% |
| $11,925 to $48,475 | $23,850 to $96,950 | 12% |
| $48,475 to $103,350 | $96,950 to $206,700 | 22% |
| $103,350 to $197,300 | $206,700 to $394,600 | 24% |
| $197,300 to $250,525 | $394,600 to $501,050 | 32% |
| $250,525 to $626,350 | $501,050 to $751,600 | 35% |
| $626,350 or more | $751,600 or more | 37% |
Long-term gains qualify for reduced federal tax rates:
| Taxable Income (Single Filers) | Taxable Income (Married Filing Jointly) | Tax Rate |
|---|---|---|
| $0 to $48,350 | $0 to $96,700 | 0% |
| $48,350 to $533,400 | $96,700 to $600,050 | 15% |
| $533,400 or more | $600,050 or more | 20% |
Additional federal rules include:
- Collectibles taxed up to 28%.
- Real estate depreciation recapture up to 25%.
- NIIT of 3.8% for high-income taxpayers.
Maryland Capital Gains Tax in 2025
Maryland taxes capital gains as ordinary income using state income tax rates plus county-level surtaxes.
Maryland State Income Tax Rates for 2025
| Taxable Income Range (Single Filers) | Taxable Income Range (Married Filing Jointly) | Maryland State Tax Rate |
|---|---|---|
| $0 to $1,000 | $0 to $1,000 | 2.00% |
| $1,001 to $2,000 | $1,001 to $2,000 | 3.00% |
| $2,001 to $3,000 | $2,001 to $3,000 | 4.00% |
| $3,001 to $100,000 | $3,001 to $150,000 | 4.75% |
| $100,001 to $125,000 | $150,001 to $175,000 | 5.00% |
| $125,001 to $150,000 | $175,001 to $225,000 | 5.25% |
| $150,001 to $250,000 | $225,001 to $300,000 | 5.50% |
| $250,001 and above | $300,001 and above | 5.75% |
Maryland County and Local Income Tax Rates (2025)
Maryland counties and Baltimore City impose additional surtaxes:
- Lowest county surtax: 2.25%
- Highest county surtax: 3.20%
- Most counties fall between 2.85% and 3.20%
Key points for Maryland taxpayers:
- Maryland taxes all capital gains at standard income tax rates.
- Combined state + county rates generally range from 4.25% to 8.95%.
- Maryland follows federal gain recognition and Section 121 home sale exclusion.
- Maryland offers no special capital gains exemptions for investments, stock sales, or business disposals.
Case Study: How Maryland Capital Gains Tax Applies
A Maryland resident earns $140,000 in wages and realizes a $60,000 long-term capital gain from selling stock. They reside in a county with a 3.20% local surtax.
Federal impact:
- The $60,000 long-term gain is taxed at 15%.
- Federal tax owed: $9,000.
Maryland impact:
- Total income: $200,000 → falls in the 5.50% Maryland bracket.
- State tax: 5.50% × $60,000 = $3,300.
- County surtax: 3.20% × $60,000 = $1,920.
- Total Maryland tax: $5,220.
Combined total tax on the gain:
$14,220, plus any applicable NIIT.
Strategies to Reduce Capital Gains Taxes
- Hold assets for more than 1 year: Reduces federal long-term capital gains tax.
- Harvest losses: Offsets gains for both federal and Maryland purposes.
- Plan timing carefully: Recognize gains in years with lower income to reduce overall tax.
- Consider residency planning: Relocating before a large taxable sale can eliminate Maryland tax.
- Use installment sales: Helps manage bracket exposure.
- Use 1031 exchanges for investment properties: Defers both federal and Maryland capital gains.
Conclusion
Maryland capital gains tax in 2025 is driven by the state’s progressive income tax brackets plus county surtaxes, making Maryland one of the costlier states for realizing capital gains. Since no state-level long-term capital gains incentives exist, taxpayers must rely on federal planning, timing, loss harvesting, and strategic moves to reduce their overall exposure.
