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

Why a sale year turns all your income into 6.99% income

Connecticut's brackets run from 2% to 6.99% for 2026, with 6.99% applying to joint taxable income above $1,000,000 ($500,000 single) under Table B of the CT-1040ES. That alone sounds like a normal progressive system. The twist is two add-backs. Table C phases out the benefit of the 2% bracket as Connecticut AGI rises, maxing at $500 for joint filers above $145,500. Table D, called tax recapture, then claws back the remaining lower-bracket benefit, reaching $6,800 for joint filers at Connecticut AGI of $1,080,000 or more (2026 CT-1040ES).

In a big sale year the result is close to a flat 6.99% on every dollar, including the salary or pension that would normally sit in the 2% to 6% brackets. The engine applies 6.99% to the gain itself, so the add-backs are a small extra on top. Federal tax on long-term gain is 0%, 15% or 20% in 2026 under Rev. Proc. 2025-32; the federal capital gains guide covers it.

Worked example: stock sale, a move, and a building

A joint-filing couple with $180,000 of other income sells company stock for a $2,000,000 long-term gain in 2026. As Connecticut residents, the sale adds $139,800 of state tax and $614,705 in total, an effective 30.7%. Had they completed a move to Florida before the sale, the total would be $474,905, a difference of $139,800. But the timing rule in the next section decides whether that move works.

An office building with a $3,200,000 gain, $700,000 of it unrecaptured Section 1250 gain, costs $1,031,973 in total, with Connecticut at $223,680. Connecticut does not separate recapture; every piece is ordinary income here. Selling that building as a nonresident does not escape Connecticut either, since Connecticut real property income is Connecticut-source.

Moving after the deal is signed: the 12-717 accrual

Connecticut's part-year rule is stricter than most. When an individual changes from resident to nonresident, CGS 12-717(c)(1) requires accrual into the resident period of any items of income or gain that accrued before the change, whatever the method of accounting. For a seller who signs an installment sale while living in Connecticut and then moves to Florida, the deferred gain is pulled into the final Connecticut return rather than following the payments out of state.

There is one exit: under 12-717(c)(4) the accrual is not required if the taxpayer files a bond or other acceptable security with the Commissioner, conditioned on reporting the gain to Connecticut as the payments arrive, as if the move had not happened. Either way Connecticut collects; the bond only changes when. A move made well before the sale is negotiated is a different case; the residency change analysis covers domicile evidence.

The conveyance tax the seller pays

Connecticut's real estate conveyance tax applies to deeds with consideration of $2,000 or more and is customarily paid by the seller. The state rate under CGS 12-494 depends on the property:

• Commercial, industrial and other non-residential property: 1.25% of the price, plus the 0.25% municipal tax (CGS 12-494(a) and (b)(1), statute as of 2026).
• Residential: 0.75% up to $800,000, 1.25% from $800,000 to $2,500,000, and 2.25% above $2,500,000 for sales after July 1, 2020, plus the 0.25% municipal share (CGS 12-494(b)(2), statute as of 2026).
• Unimproved land, including farm, forest and open space land: 0.75% state rate, since the 1.25% commercial rate excludes unimproved land (CGS 12-494(b), statute as of 2026).
• Targeted towns: certain municipalities may add up to another 0.25% (CGS 12-494(c), in effect since 2003).

A $5,000,000 office building therefore carries about $75,000 of conveyance tax at 1.5% in a town without the add-on (CGS 12-494, 2026).

Farmland and open space: the 10-year conveyance tax

Land classified as farm or forest land under Connecticut's current-use program (CGS 12-107c, 12-107d) carries an extra conveyance tax if sold within ten years of acquiring it or classifying it, whichever is earlier: 10% of the total sales price in the first year, falling one point a year to 1% in the tenth (CGS 12-504a(c), statute as of 2026). Open space land runs on the same schedule from the date of classification. This is a tax on price, not gain, and it comes on top of the regular conveyance tax, so a farm buyer's timeline matters as much as the seller's. For the federal side of a farm sale, see capital gains tax on farmland.

Estate tax, gift tax and the residency presumption

For deaths on or after January 1, 2023, Connecticut taxes estates at 12% on the amount above the federal basic exclusion amount, with total tax capped at $15,000,000 (CGS 12-391, statute as of 2026). Connecticut also keeps a gift tax on lifetime gifts (CGS 12-640, statute as of 2026), which matters for owners thinking about gifting shares before a sale. And each decedent is presumed to have died a Connecticut resident; the estate carries the burden of proving otherwise (CGS 12-391(h), statute as of 2026). Owners who left Connecticut late in life should keep their domicile evidence as carefully for the estate as for the sale. Holding for the step-up at death removes income tax on the gain but not the estate tax.

The surcharge debate and the 2026 budget

Proposals for an extra tax on high earners' capital gains have been debated in Hartford, but none appears in the budget act Governor Lamont signed May 14, 2026 (Act 26-68, per the Thomson Reuters summary) or in the 2026 CT-1040ES rate tables. What the 2026 act did change is conformity: for income years beginning after 2025, Connecticut does not apply IRC 168(n), the new federal expensing for qualified production property. A manufacturer that expenses a new plant federally will carry a higher Connecticut basis, so the Connecticut gain on a later sale of that property will be smaller than the federal gain; keep the separate state depreciation schedule. More on the federal side in depreciation recapture.

Compare Connecticut with its neighbors on the capital gains tax by state table, including New York and Massachusetts. To see a cash sale, an installment sale, a 1031 and a move side by side, get the Big Sale Tax Analysis.

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