Minnesota taxes capital gains at 9.85%. Combined with federal taxes, your effective rate on a home sale could reach 28.6%.
MN State Rate
9.85%
Top marginal rate
Federal Rate
15%
Most common long-term bracket
Combined Effective
28.6%
On $150K taxable gain (example)
After the $250K/$500K exclusion, here's what a typical seller might owe.
If Minnesota is where your primary residence is located and you've lived there at least 2 of the last 5 years, you can exclude up to $250K (single) or $500K (married filing jointly) of your capital gain from both federal and state taxes.
Investment and rental properties in Minnesota don't qualify for the exclusion. You'll owe 9.85% state tax plus federal tax on the full gain, plus 25% depreciation recapture on any depreciation claimed.
In Minnesota, homes sold in October sell for 13% more than those sold in January (-17%). Timing your sale right can offset a significant portion of your tax bill.
Capital gains tax rates on home sales in Minnesota and nearby states.
| State | Rate | Tax on $150K Gain | Notes |
|---|---|---|---|
| 0% | $0 | No state income tax | |
| 1.95% | $2,925 | Top marginal rate | |
| 3.8% | $5,700 | Flat tax (2026) | |
| 7.65% | $11,475 | Top rate; 30% deduction for long-term gains | |
MinnesotaYou | 9.85% | $14,775 | Top marginal rate |
Selling in South Dakota instead of Minnesota would save $14,775 in state tax on a $150K gain.
Minnesota has one of the highest state income tax rates at 9.85%, applied to capital gains as ordinary income. This makes it one of the most expensive states for selling appreciated property.
The Twin Cities metro (Minneapolis, St. Paul) drives the majority of the state's real estate transactions. Suburban markets have seen strong appreciation.
Minnesota does not offer a separate capital gains rate. Combined with federal taxes, sellers can face combined rates exceeding 33% on gains above the exclusion.
Sellers considering relocation before selling should compare Minnesota's rate to neighbors like South Dakota (0%) and Iowa (3.8%).
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