Capital gains tax in Arizona (2026): selling a business, real estate or farm

The 2011 line decides your Arizona rate

Arizona's tax is flat at 2.5% for 2026 (ADOR Form 140ES booklet), so the interesting question is not the bracket. It is the date on your deed or stock ledger. ARS 43-1022(22) subtracts 25% of the net long-term capital gain included in federal adjusted gross income, but only gain derived from an asset acquired after December 31, 2011. That makes the effective Arizona rate 1.875% on newer assets and the full 2.5% on older ones.

A 2025 bill (SB 1331) would have extended the subtraction to all assets from 2026; it did not pass, and the statute on azleg.gov still carries the post-2011 limit as of October 2026. Several websites still describe the broader version, so check the date before relying on it. For the federal layer (0%, 15% or 20% on long-term gain in 2026 under Rev. Proc. 2025-32), see the federal capital gains guide.

Worked example: same $2,000,000 gain, different purchase years

A joint-filing couple with $150,000 of other income sells raw land for a $2,000,000 long-term gain in 2026. If they bought it in 2009, Arizona collects $50,000 and total tax is $521,065. If they bought it in 2014, Arizona drops to $37,500 and the total to $508,565. Federal tax is identical in both; only the acquisition year moved.

Now an operating business sold as assets, acquired in 2014, with $400,000 of the gain being equipment recapture: Arizona tax is $40,000, because recapture is ordinary income and is not part of net long-term capital gain. Total tax rises to $561,175 as the federal recapture is taxed at ordinary rates too; see depreciation recapture and purchase price allocation for how the allocation drives both numbers.

Proving the acquisition date

The statute is blunt: if the date an asset was acquired cannot be verified, no subtraction is allowed (ARS 43-1022(22)). For land or a rental, the recorded deed settles it. For a business it is harder:

• Stock or LLC interest sale: the date you acquired the shares or membership interest controls. A company founded in 2008 is a pre-2012 asset even if it doubled in value last year.
• Asset sale: each asset carries its own date. Equipment bought in 2018 qualifies (for the capital gain part); self-created goodwill built since the 1990s is hard to date, and Arizona has not published a method for splitting it, so document what you can.
• Gifts and inheritances: the transferee takes the transferor's acquisition date for this purpose. Land your parents bought in 1985 stays a pre-2012 asset in your hands, even though the federal step-up resets the basis.

Retirees moving in from California

Arizona draws many sellers from California. On the same $2,000,000 land gain, a couple still resident in California would owe $230,250 of California tax, against $37,500 in Arizona for land bought after 2011 ($192,750 apart). The move only helps for assets your old state cannot reach: California keeps taxing California real estate, and stock sold on installment while you were a California resident. Arizona, for its part, taxes nonresidents only on Arizona-source income (ARS 43-1091), so a Phoenix rental stays taxable here after you move to Nevada. The residency change analysis covers domicile evidence, and the California page covers what FTB keeps.

Community property and the step-up

Arizona is a community property state: property acquired during marriage is community property except gifts and inheritances (ARS 25-211). Under IRC 1014(b)(6), when one spouse dies, both halves of community property get a new basis at fair market value, not just the decedent's half. For an older couple holding a building with a large built-in gain, that can erase most of the gain before a sale by the survivor, which is why holding for the step-up is weighed against selling now. The subtraction rule still uses the original acquisition date, as noted above.

Depreciation history and seller financing

Arizona did not follow federal bonus depreciation in full for property placed in service before 2017; ARS 43-1022 set Arizona allowances at 10% and later 55% of the federal bonus for several of those years. Equipment from that era can carry a different Arizona basis, so the Arizona gain on its sale may differ from federal. Arizona generally follows the federal installment method, so a seller-financed sale spreads Arizona tax over the payments; the deed's affidavit of legal value must disclose a new loan from the seller (ARS 11-1133). Compare neighbors on the capital gains tax by state table, and to model every option for your sale, get the Big Sale Tax Analysis.

Run your own numbers

Frequently asked questions