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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/

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  • 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, 2014 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, 2014 at 15:19
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    Unearned income means interest, dividends, and [realized] capital gains. Unrealized capital gains are not taxed.
    – Craig W
    Sep 29, 2014 at 15:48

1 Answer 1

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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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