Capital gains tax
You’ve likely heard the term “capital gains tax,” but what is it?
When you sell a “capital asset,” which is something you own, such as a piece of real estate that is not used for a business, any profits resulting from the sale are considered capital gains. Capital assets most commonly include your home or vehicle but can also include stocks, bonds, or art.
A capital gains tax is a tax levied on any capital gains earned during a tax year. For example, if you purchased your Indiana home for $260,000 and sold it a few years later for $360,000, you have earned a capital gain of $100,000, which would be taxed.
Capital gains tax rates differ by state. Some states, like Florida, don’t even have a capital gains tax. In Indiana, the tax rate is a flat rate of 3.05%.
Capital gains are also classified as “short-term” or “long-term” at the Federal level.
- Capital gains are considered short-term when an asset is sold within a year of its purchase. Those gains are lumped into your regular income and taxed according to your tax bracket.
- Capital gains are considered long-term when earned from the sale of an asset after at least a full year of ownership. Those gains are taxed at a variable rate for a home sale, depending on your income. See the table below:
2025 capital gains tax brackets
The table below shows the long-term capital gains rates for tax year 2025. The federal income tax has seven tax rates in 2025: 10%, 12%, 22%, 24%, 32%, 35%, and 37%.
| Tax Rate | Single Filers | Married Filing Jointly | Head of Household |
| 10% | $0 to $11,925 | $0 to $23,850 | $0 to $17,000 |
| 12% | $11,925 to $48,475 | $23,850 to $96,950 | $17,000 to $64,850 |
| 22% | $48,475 to $103,350 | $96,950 to $206,700 | $64,850 to $103,350 |
| 24% | $103,350 to $197,300 | $206,700 to $394,600 | $103,350 to $197,300 |
| 32% | $197,300 to $250,525 | $394,600 to $501,050 | $197,300 to $250,500 |
| 35% | $250,525 to $626,350 | $501,050 to $751,600 | $250,500 to $626,350 |
| 37% | $626,350 or more | $751,600 or more | $626,350 or more |
It’s also possible to exclude your capital gains at the Federal level, assuming you meet the qualifications.
The maximum amount of capital gain that can be excluded is $250,000 for single filers and $500,000 for a married couple filing jointly.
According to the IRS Publication 523, you must meet these criteria:
- The home being sold is your primary residence.
- You’ve owned the home for at least two years in the five-year period before selling it.
- You’ve lived in the home for at least two years within the five-year period before selling it. The years you’ve lived in it don’t need to be consecutive. Certain exceptions to this rule are made for those who are disabled or those in the military, Foreign Service, intelligence community, or Peace Corps.
- You didn’t acquire the home through a like-kind exchange (also known as a section 1031 exchange) within the past five years. This is basically when you swap one investment property for another.
- You haven’t claimed the exclusion on another home in the past two years.
- You aren’t subject to expatriate tax (a government fee paid by those who renounce their citizenship or take up residency in another country).
You may still qualify for partial exclusion if you don’t meet any of the above criteria.
Circumstances such as a change in workplace location, a problem with your health, or having to sell the property of a parent who passed away, among others, can qualify you.
How to report your Indiana capital gains taxes
Indiana transfer taxes
The government charges a tax on this transaction whenever you sell your home and transfer the legal ownership to the buyer. This is known as a transfer tax, also sometimes called a Documentary Stamp Tax or recordation tax, depending on the state.
The Federal Trade Commission describes transfer taxes as fees that state or local governments impose when the title to a property transfers from one owner to another.
The amount owed in transfer taxes when selling your home will vary, as different states, counties, and cities have their own guidelines. Similar to other forms of taxation, these taxes are a way for the government to generate revenue and are a vital part of determining your overall profit when selling your home.
Some states, like Indiana, do not have a transfer tax.
Property taxes owed
Property tax is a charge levied on real estate based on its assessed value, usually yearly. Like most tax-related charges, property taxes fluctuate depending on the state.
According to the Tax Foundation, Indiana’s effective property tax rate on owner-occupied housing value is typically 0.71%.
Indiana state taxes are paid by the calendar year, while local taxes are paid in arrears yearly (for a period between October 1 and September 31).
Your taxes are prorated to the day of sale when you sell your home, meaning you’ll only pay taxes for the days of the fiscal year that you owned your home.
The Indiana Department of Revenue can provide more information about taxes specific to your city or town here.
