Tennessee has no state income tax, meaning you pay $0 in state capital gains tax. You still owe federal capital gains tax.
TN State Rate
0%
No state income tax
Federal Rate
15%
Most common long-term bracket
Combined Effective
18.8%
On $150K taxable gain (example)
After the $250K/$500K exclusion, here's what a typical seller might owe.
If Tennessee 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 Tennessee don't qualify for the exclusion. You'll owe 0% state tax plus federal tax on the full gain, plus 25% depreciation recapture on any depreciation claimed.
In Tennessee, homes sold in February sell for 6% more than those sold in October (-7%). Timing your sale right can offset a significant portion of your tax bill.
Capital gains tax rates on home sales in Tennessee and nearby states.
| State | Rate | Tax on $150K Gain | Notes |
|---|---|---|---|
Tennessee0%You | 0% | $0 | No state income tax |
| 4% | $6,000 | Flat tax rate | |
| 4.4% | $6,600 | Top marginal rate | |
| 4.5% | $6,750 | Flat tax rate (2026) | |
| 4.7% | $7,050 | Flat tax (2026) | |
| 4.8% | $7,200 | Top marginal rate | |
| 5% | $7,500 | Taxed as ordinary income | |
| 5.39% | $8,085 | Flat tax rate (2026) | |
| 5.75% | $8,625 | Top marginal rate |
Tennessee has no state income tax, meaning zero capital gains tax on home sales. The Hall Tax on investment income was fully repealed in 2021.
Nashville, Memphis, and Knoxville are the primary markets. Nashville's explosive growth has created significant appreciation.
The zero-tax environment, combined with no estate tax, makes Tennessee popular with retirees and relocators from high-tax states.
Tennessee has a high sales tax (7% state + up to 2.75% local) that offsets the income tax advantage for day-to-day living costs.
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