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Lets says I made $10,000 net personal investment gain on stocks if I sell now. This is Long term gain.

Lets say US federal tax rate is 20% on capital gain.

But I have $4,000 carry over investment losses (from stocks) from losses of previous years (on my schedule D).

The tax person told me the federal will first remove the $4,000 carry over losses I have on schedule D first, and pay taxes on what is left. So I only have to pay 20% capital gain taxes on $6,000 and not on $10,000.

This is all fine and clear to me.

Now my question is on state capital gain tax. does it work the same way?

Let say the state have 10% tax on capital gain.

Do I pay the 10% on the $10,000 or on the $6,000 after the federal have removed the carry over losses?

This is what is not clear to me and the tax person was not clear when I asked them.

I am assuming I have to pay state capital gain on the $6,000 and not on the original $10,000 but not able to find any confirmation on this.

I have no other income. Retired. So only income will be the selling of the stock. My state has high capital gain tax rate, so important for me to know which amount I will be taxed on. The one before carry over losses are removed from or the amount after (as with the federal taxes case).

ps. The state is Minnesota. I assumed all states have same rules.

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  • What state are you asking about? There are about 50 of those in the US...
    – littleadv
    Commented Jun 21 at 6:30
  • Following the instructions, especially for Schedule M1M, I don't see any MN adjustment to the capital gain in the federal return in the case of the question.
    – xuhdev
    Commented Jun 21 at 8:30
  • Your state capital loss carryforward is usually the same as federal if you were a resident of that state the whole time. But if you moved between states between the capital gain/loss and now, then your state capital loss carryforward may be different from federal, since your carryforward may be in a different state than the state you are paying taxes in now.
    – user102008
    Commented Jun 22 at 0:25

1 Answer 1

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You're asking about Minnesota capital gains tax.

Minnesota conforms to the Federal tax regime when it comes to capital loss carry-over, and doesn't have preferential capital gains tax (i.e.: it doesn't matter, for the purposes of the state tax, if the gain is long term or short term).

So yes, you'll be able to carry forward your prior year losses and deduct them from the current year gains.

See this fact sheet for details.

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  • Ok, thanks. So for the example I gave, I understand you are saying that I will pay MN state capital gain on the $6,000 and not on the $10,000. This is good news.
    – Steve H
    Commented Jun 21 at 6:39
  • Can you please confirm what you said means that I will pay state capital gain on the $6,000 (after removing the carry over losses) and not on the original net gain $10,000? I know little about taxes. I think that is what you said. right?
    – Steve H
    Commented Jun 21 at 6:47
  • @SteveH I don't know what carry over you're referring to. Capital losses are not reported on Schedule A. For the amounts in your example it doesn't matter because you'll pay very little tax, if at all. But if the amounts are significant and you're not feeling comfortable reading about this yourself - hire a tax advisor.
    – littleadv
    Commented Jun 21 at 6:52
  • H&R said these are schedule A losses, from last year investment losses. Losses I had on stocks from last years that I carry over. So I am allowed to deduct them against any future gains I made in stocks. H&R confirmed this. I am just asking if I will pay state taxes after deduction or before. Just like the example I gave. It makes big difference to me which amount it is.
    – Steve H
    Commented Jun 21 at 6:57
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    Again, capital losses are not reported on Schedule A. Other losses (e.g.: theft and casualty) are. So if your losses are reported on Schedule A then these are not capital losses. Could it be that you're confusing schedules A and D? In any case, tax preparation software usually does this automatically if it is aware of your prior year tax return.
    – littleadv
    Commented Jun 21 at 7:00

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