Tennessee Capital Gains Tax: What Homeowners & Investors MUST Know for 2025

On January 1, 2021, Tennessee officially eliminated the TN Hall Income Tax, which previously taxed certain investment income. This move positioned Tennessee among the few states without any form of personal income tax, including taxes on capital gains. 

Think about that for a second – a state that lets you keep every penny of your investment appreciation at the state level? It’s a pretty big deal. 

For instance, a client from Chattanooga sold her investment property in early 2025 and was pleasantly surprised to find that, at the state level, she owed nothing. However, it’s essential to remain vigilant about federal tax obligations, as the IRS still expects its share.

Could this tax-friendly environment influence your next investment decision?

Estimate Your Federal Capital Gains Tax (as a TN Resident)

While Tennessee boasts no state capital gains tax on your investments or primary home sale (for tax years 2021 and beyond!), federal obligations remain.

Use this estimator to get an idea of your potential 2025 federal capital gains tax (for taxes filed in 2026)

This tool provides an estimate based on 2025 federal rates and the information you enter. Remember, tax laws can change, and your individual situation (including other income, deductions, and credits) will affect your actual tax liability.

For precise calculations, specific advice on strategies like tax-loss harvesting, or understanding the Net Investment Income Tax (NIIT) in detail, always consult with a qualified tax professional. Understanding your federal tax liability is a key part of smart financial planning in Tennessee.

The Big News: Tennessee & State-Level Capital Gains Tax – What Changed?

Ever wonder why Tennessee suddenly became such a hotspot for investment income. Or why folks selling property here seem a bit more cheerful? One key piece of legislation flipped the switch. For years, Tennessee had something called the TN Hall Income Tax. This wasn’t a tax on all income, but it did hit some of their interest and dividend income.

The crucial point is that the Hall income tax was fully repealed for tax years beginning on or after January 1, 2021. As the Tennessee Department of Revenue clearly states, “Tennessee does not have an individual income tax. Tennessee’s Hall income tax applied only to individuals and other entities receiving interest from bonds and notes and dividends from stock. The Hall income tax was fully repealed for tax years beginning on or after January 1, 2021.” 

This repeal effectively removed the last mechanism through which the state directly taxed individual gains from the sale of most investments and property.

So, when we talk about “no state capital gains tax” in Tennessee for individuals on assets like stocks or your home, this repeal is the bedrock reason.

For Tennessee Investors (Stocks, Bonds, Real Estate, Oh My!)

Building wealth through investments in Tennessee? Your state isn’t looking for a cut of the profits, but that means your federal game needs to be sharp. Just because you’re playing on a tax-friendly field doesn’t mean you can ignore the rulebook!

Mutual Fund Distributions: A Quick Note Post-Hall Tax

Used to get a state tax bill for those mutual fund ‘capital gains’ payouts? Good news on that front. Under the old Hall Tax rules, certain distributions from mutual funds that were classified as “capital gains” could be taxable at the state level.

However, with the Hall Tax repealed effective January 1, 2021, these types of distributions from mutual funds are now also exempt from Tennessee state tax for individuals (Tennessee Department of Revenue). Your focus for these, too, is solely on federal taxation.

Whether you’re into stocks, bonds, mutual funds, or real estate investing, your planning in Tennessee needs to be laser-focused on federal strategies.

So, No State Tax… But What About Uncle Sam? Understanding Federal Capital Gains Tax

Okay, so Nashville isn’t sending you a tax bill for your gains. Great! But does that mean you’re completely off the hook? Not so fast… This is where many people get tripped up. While Tennessee gives you a pass, the IRS still expects its share through federal capital gains tax.

Let’s be real: federal rules are still very much in play, and ignoring them can lead to some nasty surprises.

A capital asset generally includes most things you own for personal use or investment, like stocks, bonds, your home, or investment properties. When you sell a capital asset for more than your adjusted basis, you have a capital gain.

One of my clients in Nashville delayed selling his appreciated stock by just two months, transitioning from a short-term to a long-term gain, and saved thousands in taxes. It’s a testament to how timing can be everything in tax planning.

Are you making the most of your holding periods? You can learn more about the basics of capital gains tax from a federal perspective on my site.

Long-Term vs. Short-Term Gains: Why Holding Periods Matter (Everywhere!)

Think patience doesn’t pay? When it comes to federal capital gains, waiting just one extra day can sometimes save you thousands on your tax bill. The IRS differentiates between:

• Long-Term Capital Gains: 
  Profit from assets you’ve held for more than one year. These are typically taxed at lower rates: 0%, 15%, or 20%, depending on your overall taxable income.
  For example, for the 2024 tax year (filed in 2025), the 15% rate for single filers covers taxable income from $47,026 up to $518,900. (For the most current federal capital gains tax rates).
• Short-Term Capital Gains: 
  Profit from assets you’ve held for one year or less. These are taxed at your ordinary income tax rates, which can range from 10% all the way up to 37%, depending on your income bracket.

The difference can be substantial. What if you sold stock A after 11 months versus 13 months? That small difference in holding period could shift a hefty tax bill from your higher ordinary income rate down to a more favorable long-term capital gains rate. This distinction is absolutely critical for investors everywhere, including Tennessee.

Selling Your Primary Residence in Tennessee

Tennessee homeowners can benefit significantly when selling their primary residence. Most homeowners are eligible for a significant federal exclusion on the capital gains from selling their primary residence.  (HomeLight). If you’ve lived in your home for at least two of the past five years.

Here’s the deal:

• If you’re single, you can exclude up to $250,000 of gain.
• If you’re married filing jointly, you can exclude up to $500,000 of gain.

Combined with Tennessee’s lack of a state income tax, this can result in substantial savings. I remember a couple from Knoxville who sold their home in mid-2022, realizing a $480,000 gain. Thanks to these provisions, they paid no capital gains tax at all. Not to Tennessee, and not to the feds. Now that’s what I call a sweet deal! 

Is your home sale strategy aligned with these benefits? For more details, check out my guide on capital gains tax on home sales.

Historical Tennessee tax policy information

Investment Strategies for Tennessee Residents

Even without state taxes, federal taxes require careful planning. Remember, a penny saved from the IRS is a penny truly earned. 

Consider these strategies:

• Tax-Loss Harvesting: 
  Offset gains with losses to reduce taxable income. This is a fundamental part of how to avoid paying capital gains tax at the federal level.
• Strategic Holding Periods: 
  As we discussed, aim to hold appreciated assets for more than one year to qualify for those lower long-term capital gains rates. This can make a significant difference in your federal tax bill.
• Timing Your Sales: 
  If you’re close to an income threshold that would bump you into a higher federal capital gains tax bracket (e.g., from 0% to 15%, or 15% to 20%), consider timing your sales across tax years to potentially stay in a lower bracket for some or all of your gains.
• Charitable Donations: 
  Donating appreciated assets can provide deductions and avoid capital gains taxes. Many us donor advised funds for this.
• Opportunity Zones: 
  Investing in designated opportunity zone areas can offer tax incentives (The Entrust Group often discusses various investment vehicles).

Which of these federal strategies could make the biggest difference for your portfolio this year? Consider discussing with your advisor.

Relocating to Tennessee: Tax Implications

Moving to Tennessee can offer tax advantages, but timing is crucial. Ensure you establish residency before selling significant assets to avoid taxes from your previous state.

A client who moved from California in early 2024 and sold his business post-move saved substantially on state taxes. This is particularly relevant for those with high net worth asset allocation considerations.

Could a strategic relocation benefit your financial plan?

Conclusion: The Tennessee Takeaway on Capital Gains

So, what’s the bottom line for your bottom line when it comes to capital gains in Tennessee? It’s genuinely good news:

• State Relief: Tennessee does not have a state capital gains tax for individuals on the sale of investments or property, thanks to the Hall Tax repeal.
• Federal Focus: This means all your capital gains tax planning needs to center on federal rules, rates, and strategies.
• Homeowner Edge: For homeowners selling their primary residence, the generous federal exclusion combined with $0 state tax can mean keeping a very significant portion of your sale proceeds.
• Investor Strategies: Smart investors in Tennessee will leverage federal-level techniques like tax-loss harvesting, strategic holding periods, and charitable gifting of appreciated assets to minimize their overall tax bite.

Ready to make the most of Tennessee’s tax laws? Ensure your federal strategy is buttoned up. If you’re unsure, now’s the time to talk to a qualified financial advisor or tax professional.

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Note: The content provided in this article is for informational purposes only and should not be considered as financial or legal advice. Consult with a professional advisor or accountant for personalized guidance.

• Tennessee TN Capital Gains Tax Calculator