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

A ceiling no other state has: $10 million of net gain

Form AR1000D walks every Arkansas seller through the same steps: start with the federal long-term gain, adjust for depreciation differences, subtract any net short-term loss, and then, on line 7b, enter no more than $10,000,000. Line 8 multiplies that figure by 50% (AR1000D, revised April 2025). Net capital gain beyond $10 million in one year never reaches the tax table.

For the founder who sells a $40 million company, the Arkansas bill is capped at what $10 million of gain produces. The cap is annual, which is why timing matters more here than almost anywhere. Federal tax still applies to the whole gain: 20% above $613,700 of joint taxable income plus 3.8% NIIT where it applies (Rev. Proc. 2025-32, 2026); see the federal capital gains guide.

When spreading the sale costs more

Most state pages tell you an installment sale lowers the bill by keeping each year in a lower bracket. Arkansas is flat at the top, so spreading barely moves the rate, while it does multiply the $10 million ceiling problem in reverse. A $15,000,000 gain closed in cash in 2026 produces $185,000 of Arkansas tax and $3,750,065 in all. Report the same gain as $5,000,000 in each of three years and Arkansas takes $277,500, with total tax of $3,832,695, or $82,630 more.

A note can still make sense for buyer financing, security or federal reasons, and the gain in each year below $10 million gets the same 50% treatment. But for gains well above $10 million, the Arkansas math favors recognizing as much as possible in one year. A seller can elect out of the installment method; see electing out.

What the 50% exclusion does not reach

The half-off rule applies only to net capital gain. Three pieces of a typical sale are taxed in full at up to 3.7% for 2026:

• Depreciation recapture on equipment and vehicles. Federal Form 4797 Part II ordinary gain goes on AR1000F line 15, adjusted for Arkansas depreciation (2025 instructions). In the $2,000,000 business example, the $400,000 of recapture is why Arkansas tax is $44,400 rather than a flat half-rate figure.
• Short-term gain. AR1000D adds short-term gain separately on line 11, outside the 50% and outside the $10 million cap.
• Ordinary income dressed up in the deal: consulting, non-compete and inventory payments. Purchase price allocation decides how much lands here.

Arkansas basis is not federal basis

Arkansas did not adopt federal bonus depreciation, so the instructions tell sellers to adjust gains and losses for depreciation differences on AR1000D lines 2, 5 and 10 (2025 AR1000F instructions). An owner who bonus-depreciated trucks or equipment federally has deducted less for Arkansas, so the Arkansas basis is higher and the Arkansas recapture smaller. Arkansas did adopt Section 179 as in effect on January 1, 2022, for purchases after 2022 (same instructions), which narrows the gap for newer assets. Keep a separate Arkansas depreciation schedule; without it the state return simply copies federal numbers and overstates the gain. More on the federal side in depreciation recapture.

Homes, land and the deed

Gain on a principal residence is exempt up to $250,000 per taxpayer or $500,000 for married couples on the same return, with the familiar two-of-five-years ownership and use test (2025 AR1000F instructions). Farmland and timberland that qualify as Section 1231 property flow through Schedule D as long-term gain and share in the 50% exclusion, which makes Arkansas a friendly place for farmland sales.

At closing, Arkansas levies a real property transfer tax of $3.30 per $1,000 of actual consideration on deeds over $100, mineral rights included (DFA). On a $5,000,000 property that is $16,500; the contract sets who pays.

The 2026 rate and planning around it

Arkansas cut its top rate from 3.9% to 3.7% for 2026 and later in SB1, which became Act 2 of the 2026 extraordinary session; the 3.7% bracket begins above $94,700 of net taxable income, with a bracket adjustment for incomes just above that line (DFA fiscal impact statement, April 2026).

With an effective rate near 1.85% on long-term gain in 2026, the state layer is rarely the deciding factor in an Arkansas sale; the federal 20%, NIIT and recapture are. Compare neighbors on the capital gains tax by state table, such as Oklahoma and Tennessee. To test a cash closing against a note, a 1031 and other paths with your numbers, get the Big Sale Tax Analysis.

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Frequently asked questions