How Massachusetts capital gains tax on rental property works
A rental sale in Massachusetts is taxed federally like anywhere else: depreciation recapture at your ordinary rates up to 25%, the rest of a long-term gain at 0%, 15% or 20%, and the 3.8% net investment income tax at higher incomes. On top of that, Massachusetts taxes the gain. Long-term gains are taxed at 5% and short-term gains at 8.5%, plus a 4% surtax on income above $1,107,750.
- Massachusetts taxes long-term capital gains at 5% and short-term capital gains at 8.5%.
- The 4% surtax applies to taxable income above $1,107,750 in 2026, and a large gain counts toward it.
In the calculator above, the Massachusetts tax is the difference between the state tax on your income with the sale and without it, so deductions, brackets and any exclusion are applied as Massachusetts applies them.
Worked example: selling a Massachusetts rental
A single investor earning $90,000 bought a Massachusetts rental in June 2016 for $300,000, paid $6,000 in closing costs and later spent $20,000 on improvements. They sell in November 2026 for $500,000 with 6% selling costs. Estimated depreciation of $92,727.27 leaves a gain of $236,727.27.
| Amount | |
|---|---|
| Federal income tax | $43,218.54 |
| Net investment income tax | $4,815.64 |
| Massachusetts tax | $11,836.36 |
| Total tax | $59,870.54 |
| Cash kept after the $150,000 mortgage payoff | $260,129.46 |
Massachusetts adds $11,836.36 to $48,034.18 of federal tax, for 25.3% of the gain in all. That ranks Massachusetts 33 of 51 for state tax on this sale (1 is the lowest).
| Situation | Gain | Massachusetts tax | Total tax |
|---|---|---|---|
| Single, $40,000 of other income | $236,727.27 | $11,836.36 | $54,320.54 |
| Single, $90,000 of other income (the example) | $236,727.27 | $11,836.36 | $59,870.54 |
| Married, $200,000 of other income | $236,727.27 | $11,836.36 | $61,914.54 |
| A flip sold after 9 months | $39,800.00 | $3,383.00 | $12,139.00 |
The first three rows sell the same property; the flip is a $360,000 sale of a house bought for $250,000 with $40,000 of work, held under a year, so its gain is short-term.
Massachusetts vs. neighboring states
State tax on the same $500,000 sale in New Hampshire, Vermont, Rhode Island, New York and Connecticut, lowest first. Each state links to its own calculator.
| State | How the gain is taxed | State tax | Total tax |
|---|---|---|---|
| New Hampshire | No state income tax, so no New Hampshire tax on the gain. | $0.00 | $48,034.18 |
| Massachusetts | Long-term gains are taxed at 5% and short-term gains at 8.5%, plus a 4% surtax on income above $1,107,750. | $11,836.36 | $59,870.54 |
| Vermont | 40% of the gain other than depreciation is excluded on property held over three years (or a flat $5,000), within caps. | $13,261.66 | $61,295.84 |
| Rhode Island | Taxed as ordinary income at the state's income tax rates. | $13,680.35 | $61,714.53 |
| New York | Taxed as ordinary income at the state's income tax rates. | $14,948.52 | $62,982.70 |
| Connecticut | Taxed as ordinary income at the state's income tax rates. | $15,094.18 | $63,128.36 |
Where the property is matters as much as where you live: states tax gains on real estate located in them, so selling a rental in another state usually means filing there too.
All 50 states and D.C. are compared on the same sale in the state tax on selling a rental table, which you can sort and download.
Self-employed in Massachusetts? The Massachusetts 1099 tax calculator works out federal, self-employment and Massachusetts income tax on freelance income, with the quarterly estimated payments.
States with similar rules
Massachusetts is one of 12 states that exclude part of the gain or tax it at a special rate. These are the closest to it on the same $500,000 sale:
- Wisconsin: $9,078.02 of state tax. 30% of a long-term gain is excluded; the rest is taxed at Wisconsin's rates.
- Montana: $9,705.82 of state tax. Long-term gains are taxed at 3.0%, or 4.1% above $47,500 of taxable income ($95,000 joint).
- New Mexico: $12,458.41 of state tax. Up to $2,500 of the gain is deducted; the rest is taxed at New Mexico's rates.
- Vermont: $13,261.66 of state tax. 40% of the gain other than depreciation is excluded on property held over three years (or a flat $5,000), within caps.
Before you sell a rental in Massachusetts
The sale of a rental goes on IRS Form 4797, which carries the gain to Schedule D and the depreciation part to the unrecaptured section 1250 gain worksheet. Before you file, gather the closing statements from both the purchase and the sale, your depreciation schedules (Form 4562 or your tax software's asset list) and receipts for improvements. Each of them changes your adjusted basis, and with it the gain.
A large gain can also bring an underpayment penalty if no tax is paid on it during the year. Federally, you avoid the penalty by paying, through withholding or estimated payments, at least 90% of this year's tax or 100% of last year's (110% if last year's AGI was over $150,000). Sending the tax on the sale with the next quarterly estimate is the simplest way to stay inside those rules. Massachusetts's own estimated tax rules are set by the Massachusetts Department of Revenue, so check them too.
If the rental produced losses you couldn't deduct under the passive activity rules, selling your entire interest to an unrelated buyer generally frees them in the year of the sale, which offsets part of the gain.
The bottom line
Rental property capital gains tax in Massachusetts is federal tax plus Massachusetts's: $11,836.36 of state tax and $59,870.54 in all on the example's $236,727.27 gain.
Enter your own numbers in the calculator to estimate your Massachusetts capital gains tax on rental property, compare a sale with a 1031 exchange, and confirm the details with the Massachusetts Department of Revenue or a tax professional before you sell.
Frequently asked questions
Does Massachusetts tax capital gains on rental property?
Yes. Long-term gains are taxed at 5% and short-term gains at 8.5%, plus a 4% surtax on income above $1,107,750. The gain is the sale price minus selling costs and your adjusted basis (what you paid, plus improvements, minus depreciation). On a $500,000 sale of a rental bought for $300,000 in 2016, a single seller earning $90,000 owes about $11,836.36 to Massachusetts, 5% of the gain. The calculator above adds up the taxes on selling rental property in Massachusetts for your own numbers.
How is depreciation recapture taxed in Massachusetts?
Federally, the part of the gain that comes from depreciation, called unrecaptured section 1250 gain or depreciation recapture, is taxed at your ordinary rates up to 25%. Massachusetts taxes it as part of the capital gain: 5% if you owned the property more than a year, 8.5% otherwise.
Can a 1031 exchange defer Massachusetts tax on a rental sale?
A 1031 exchange defers the federal tax if you reinvest in like-kind property within the 45- and 180-day deadlines, and most state income taxes defer the gain too. Rules differ when the replacement property is in another state, where some states keep track of the deferred gain, so confirm the treatment with the Massachusetts Department of Revenue.
Does the 3.8% net investment income tax apply in Massachusetts?
Yes. The net investment income tax is federal, so it applies the same way in every state: 3.8% of the gain or of your modified adjusted gross income above $200,000 ($250,000 joint), whichever is smaller. In the example it adds $4,815.64.
Do I owe Massachusetts tax if I sell a rental there but live in another state?
Usually yes: states tax gains on real estate located within them, including for nonresidents, and some require tax to be withheld at closing. Your home state typically gives a credit for tax paid to Massachusetts. This page assumes you live in Massachusetts; rules for nonresidents can differ.
Sources and further reading
- Massachusetts 4% Surtax on Taxable Income (opens in a new tab), Massachusetts Department of Revenue
- 2026 State Income Tax Rates and Brackets (opens in a new tab), Tax Foundation
- Massachusetts Department of Revenue (opens in a new tab), State of Massachusetts
- Publication 544, Sales and Other Dispositions of Assets (opens in a new tab), Internal Revenue Service
- Instructions for Schedule D (Form 1040) (opens in a new tab), Internal Revenue Service
Related calculators
- Rental Property Depreciation CalculatorDon't know how much depreciation you've taken? Build the schedule from the IRS tables, improvements included.
- 1031 Exchange CalculatorBuying another rental with the proceeds? See how much of the gain a 1031 exchange defers.
- Hard Money Loan CalculatorFlipping your next property? Model the rehab loan, cash to close and the flip's profit before tax.