Tennessee remains one of the most tax-friendly states for investors, retirees, and business owners. As of 2025, Tennessee imposes no state income tax of any kind, which means the Volunteer State does not tax capital gains, whether short-term, long-term, or related to the sale of real estate, stock, cryptocurrency, or business interests. This makes Tennessee a highly attractive residence for taxpayers expecting significant investment gains or a major liquidity event. This guide explains how capital gains are treated in Tennessee in 2025, how federal rules apply, and strategies that can help maximize tax efficiency.
What Are Capital Gains?
Capital gains arise when you sell an asset—such as stocks, bonds, business interests, real estate, or digital assets—for more than its original cost.
Only realized capital gains are taxable. Unrealized gains (paper gains before selling) are not taxed.
Short-Term vs. Long-Term Capital Gains
For federal purposes:
- Short-term capital gains: Assets held one year or less, taxed at ordinary federal income tax rates.
- Long-term capital gains: Assets held more than one year, taxed at reduced federal rates.
Tennessee does not tax either type of capital gain at the state level.
Federal Capital Gains Tax (2025)
Short-Term Capital Gains
Short-term gains are taxed as ordinary income under these 2025 federal brackets:
| Taxable Income (Single) | Taxable Income (Married Joint) | 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+ | $751,600+ | 37% |
Long-Term Capital Gains
| Taxable Income (Single) | Taxable Income (Married Joint) | Rate |
|---|---|---|
| $0 to $48,350 | $0 to $96,700 | 0% |
| $48,350 to $533,400 | $96,700 to $600,050 | 15% |
| $533,400+ | $600,050+ | 20% |
Additional federal considerations:
- Real estate depreciation recapture: taxed at 25%
- Collectibles: maximum 28%
- Net Investment Income Tax (NIIT): 3.8% for income above
- $200,000 (single)
- $250,000 (married joint)
Tennessee Capital Gains Tax in 2025
Tennessee does not tax capital gains.
Key points:
- 0% tax on short-term capital gains
- 0% tax on long-term capital gains
- 0% tax on interest and dividends (Hall Income Tax fully repealed January 2021)
- 0% tax on retirement income
- 0% tax on business pass-through income (except standard franchise/excise taxes on certain entities)
Tennessee is one of the few states where capital gains are entirely tax-free at the state level.
Tennessee’s Tax Benefits for Investors
Investors and high-income earners benefit from:
- No state personal income tax
- No capital gains tax
- No retirement income tax
- No tax on interest or dividends
- Low cost of living compared to other tax-free states like Florida or Texas
This combination makes Tennessee an increasingly popular destination for individuals planning major asset sales, stock liquidations, or business exits.
Tax Residency Considerations
If you are moving to Tennessee before a major investment sale:
- You must establish full Tennessee residency
- You must sever tax ties with your prior state
- High-tax states may audit residency changes (e.g., CA, NY, NJ)
Timing matters—move before selling appreciated assets.
Case Study: Tennessee Capital Gains Example
Scenario:
Liam relocates to Tennessee and sells 6,500 shares of stock purchased at $40 in 2019 and sold for $100 in 2025.
Total gain:
6,500 × $60 = $390,000
Federal Taxes
Liam falls into the 15% federal long-term bracket:
- Federal long-term tax:
$390,000 × 15% = $58,500
NIIT applies to $140,000 of the gain:
- NIIT:
$140,000 × 3.8% = $5,320
Total federal tax: $63,820
Tennessee State Taxes
- State capital gains tax: $0
Total Tax Liability
- Federal: $63,820
- State: $0
- Total: $63,820
Tennessee’s 0% capital gains tax dramatically reduces total tax liability compared to high-tax states.
Strategies to Reduce Capital Gains Taxes in Tennessee
1. Time Your Move to Tennessee Strategically
Execute major investment or business sales after establishing Tennessee residency.
2. Use Tax-Loss Harvesting
Offset gains with losses to reduce federal liability.
3. Maximize Retirement Contributions
Traditional IRA and 401(k) contributions reduce federal taxable income.
4. Explore Opportunity Zone Investments
May allow federal deferral or exclusion of certain gains.
5. Use Charitable Planning Tools
CRTs and donor-advised funds help eliminate or defer federal capital gains tax.
6. Consider Installment Sales
Spreading gains over multiple years can help manage federal bracket impact and reduce NIIT.
Tennessee’s 0% capital gains tax offers substantial advantages, but the federal tax burden remains significant. Because every situation varies based on residency, income level, asset type, and timing, consider consulting a qualified tax professional or financial advisor to determine the most effective strategy for your financial goals.