What are the rules for taxation of capital gains?
Maryland’s taxation of capital gains is based on the Federal tax code and recent tax reform. Generally speaking, when you sell an asset like stocks, bonds, or a piece of real estate, the difference between what you paid for it and what you sold it for is considered a capital gain. This gain is taxed as income at the state and federal levels. In Maryland, capital gains are taxed as ordinary income at the state level. The tax rates for ordinary income range from 2% to 5.75% though certain exemptions and deductions may apply. Capital gains are also subject to Federal taxation. The Tax Cuts and Jobs Act, which was signed into law in 2017, changed the tax rates for capital gains from 0, 15, or 20 percent for most taxpayers. When you are required to pay taxes on capital gains, you must report the gains on your state and federal tax returns. For example, if you sold stock in Maryland in 2021, the capital gains would be reported in the “other income” section of your federal IRS 1040 form and on the “schedules of income” section of your Maryland income tax return. Overall, the taxation of capital gains in Maryland is based on the Federal tax code and can range from 0 to 20 percent, depending on the type of asset and the length of time it was held. Additionally, capital gains must be reported on both state and federal tax returns.
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