My state (Massachusetts) imposes a 5.2% tax on unrealized capital gains. [1] I'm trying to understand how this tax is calculated. Here's an example:

John Doe makes $50,000 in a given year. Meanwhile, one of his investments — let's say an index fund — accrues $10,000 in interest. In Massachusetts, John Doe's taxable income will be $60,000 for that year.

Is that correct?

[1] http://www.mass.gov/dor/all-taxes/income/

  • Can you cite the source of that? The only reference I can find about taxing unrealized gains I can find is related to handling of an estate for a deceased person. – JohnFx Sep 28 '14 at 16:54
  • "For tax year 2013, Massachusetts imposed a 5.25% tax on both earned income (salaries, wages, tips, commissions) and unearned (interest, dividends and capital gains.); certain capital gains are taxed at 12%." - mass.gov/dor/all-taxes/income – hawkharris Sep 29 '14 at 15:19
  • 6
    Unearned income means interest, dividends, and [realized] capital gains. Unrealized capital gains are not taxed. – Craig W Sep 29 '14 at 15:48

Massachusets does no such thing. The 5.25% tax is only on realized gains. "Unearned" means "doesn't tie to your trade/business", i.e.: is not gained through your personal performance.

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