Capital Gains Tax

Capital Gains Tax in Illinois: Complete Guide 2026

Updated 2026-03-10

Data Notice: Figures, rates, and statistics cited in this article are based on the most recent available data at time of writing and may reflect projections or prior-year figures. Always verify current numbers with official sources before making financial, medical, or educational decisions.

Capital Gains Tax in Illinois: Complete Guide 2026

Tax information is for educational purposes only and does not constitute tax advice. Consult a licensed tax professional for your specific situation.

Illinois taxes capital gains at its flat 4.95% income tax rate with no distinction between short-term and long-term gains. As a flat-tax state, the rate applies equally to all taxpayers regardless of income level. While 4.95% is moderate compared to coastal states, Illinois’ overall tax burden — including one of the highest property tax rates in the country — makes comprehensive tax planning important for investors.

Illinois Capital Gains Tax Rates (2026)

ComponentRate
Illinois flat income tax rate4.95%
Long-term capital gains rate4.95% (same as ordinary income)
Short-term capital gains rate4.95% (same as ordinary income)
Federal long-term capital gains0%, 15%, or 20%
Net Investment Income Tax (NIIT)3.8% (MAGI over $200K / $250K MFJ)

Combined Federal + Illinois Rate on Long-Term Gains

Income LevelFederal RateIL RateNIITCombined
Below ~$48,3500%4.95%—4.95%
~$48,351 — ~$200,00015%4.95%—19.95%
~$200,001 — ~$533,40015%4.95%3.8%23.75%
Over ~$533,40020%4.95%3.8%28.75%

The maximum combined rate of ~28.75% is competitive nationally, falling between no-income-tax states (23.8%) and high-tax states like California (~37.1%).

How It Works

Flat Rate Applied to Federal AGI

Illinois computes its income tax starting from federal adjusted gross income (AGI). Capital gains flow through on your federal return and are included in your Illinois AGI. The flat 4.95% rate is then applied to your entire Illinois taxable income (federal AGI with state-specific adjustments). There are no brackets, no surtaxes, and no special capital gains rates.

This means the state tax calculation is simple: your net capital gains multiplied by 4.95%.

Constitutional Flat Tax Requirement

Illinois’ constitution requires a flat income tax rate. A 2020 ballot measure that would have allowed a graduated income tax was rejected by voters. This means the 4.95% rate cannot be increased for higher earners without a constitutional amendment — providing some certainty for investors and high-income taxpayers.

Capital Loss Treatment

Illinois conforms to federal capital loss treatment:

  • Losses offset gains
  • Up to $3,000 in net capital losses can be deducted against ordinary income ($1,500 for married filing separately)
  • Unused losses carry forward indefinitely

No Estate or Inheritance Tax

Illinois imposes an estate tax on estates exceeding ~$4 million in value (significantly lower than the federal threshold of ~$13.6 million). While this is an estate tax rather than a capital gains tax, it affects planning for inherited assets. Inherited assets do receive a stepped-up cost basis under federal rules, which eliminates unrealized capital gains.

Comparison to National Average

MetricIllinoisTypical State
Capital gains rate4.95% (flat)~0%—5%
Preferential long-term rateNoneMost follow federal
Constitutional rate protectionFlat rate requiredNo
Combined max rate (LT gains)~28.75%~28%—30%
Estate taxYes ($4M threshold)~12 states + DC

Illinois’ flat 4.95% rate is near the national median. The constitutional flat-rate requirement provides stability, though it also means the state cannot offer preferential rates for specific types of capital gains.

Tips for Minimizing Illinois Capital Gains Tax

  1. Harvest losses to offset gains. Illinois conforms to federal loss rules. Strategically selling underperforming investments to offset realized gains reduces both federal and state tax.
  2. Use retirement accounts for investment growth. Gains within 401(k)s, IRAs, and Roth accounts are not subject to Illinois capital gains tax until distribution (never for Roth accounts). Maximizing contributions shelters returns from the 4.95% state tax.
  3. Donate appreciated assets. Illinois allows a deduction for charitable contributions. Donating appreciated stock or property avoids capital gains tax and provides a deduction at both the federal and state level.
  4. Consider the timing of large gains. While the flat rate does not change with income level, federal rates and NIIT thresholds make timing important. A year with lower overall income can keep you below the NIIT threshold or in the 15% (or even 0%) federal bracket.
  5. Plan for the estate tax. Illinois’ ~$4 million estate tax threshold is much lower than the federal threshold. For estates near this level, realizing gains and paying capital gains tax during life may be preferable to passing appreciated assets that will be subject to the estate tax.
  6. Factor in the overall Illinois tax burden. With property taxes averaging ~2.08% and sales taxes averaging ~8.83%, Illinois’ total tax environment is costly. Capital gains tax planning should be integrated with property and sales tax considerations.
  7. Use installment sales for large transactions. Spreading gain over multiple years does not change the 4.95% state rate but can reduce the federal rate and avoid the NIIT threshold.

Key Takeaways

  • Illinois taxes all capital gains at a flat 4.95% rate with no distinction between short-term and long-term gains
  • The constitutional flat-rate requirement prevents graduated rates, providing stability for investors
  • The combined federal-plus-state rate maxes out at ~28.75%, competitive with most states
  • Illinois conforms to federal capital loss treatment, including the $3,000 annual deduction against ordinary income
  • The state’s ~$4 million estate tax threshold is significantly lower than the federal threshold and affects planning for inherited assets
  • The flat rate makes Illinois capital gains tax calculation simple and predictable

Next Steps