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

Ohio splits one gain into two kinds of income

Ohio asks a question most states skip: is the gain business income or nonbusiness income? Nonbusiness income, such as gains on stocks, land and rentals you hold passively, is taxed at a flat 2.75% above $26,050 of taxable income for tax years 2026 and later (ORC 5747.02 as amended by HB 96; the 2025 top rate was 3.125%).

Business income gets its own track. The first $250,000 is deducted ($125,000 for each spouse filing separately) and everything above that is taxed at 3% (ORC 5747.01(A)(28) and 5747.02, 2026). Gain on goodwill, on a liquidation, and on selling stock or an LLC interest all count when the sale is treated as an asset sale for federal purposes or when the seller materially participated in the business in the year of sale or any of the five years before it (ORC 5747.01(B)).

The federal layer is separate: 0%, 15% or 20% on long-term gain, with 20% starting above $613,700 of joint taxable income for 2026 (Rev. Proc. 2025-32). The federal capital gains guide covers that piece.

Worked example: a company and a rental building with the same $2,000,000 gain

A joint-filing couple sells the company they ran for a $2,000,000 gain, $200,000 of it equipment recapture. Because they materially participated, the whole gain is Ohio business income: the engine shows $52,500 of Ohio tax and $480,975 of total tax caused by the sale, an effective 24.0%.

The same gain on a passively held rental building is nonbusiness income at 2.75% with no deduction, so Ohio takes $55,000. The business sale costs $2,500 less in Ohio tax. Totals differ more, $480,975 against $564,253, because an active owner escapes the 3.8% net investment income tax (IRC 1411) and $400,000 of the building gain is unrecaptured Section 1250 gain taxed at up to 25% (IRC 1(h), 2026).

The $3,000,000 crossover nobody mentions

The $250,000 deduction makes the 3% business rate cheaper than the 2.75% rate on smaller sales, but the advantage runs out. Simple arithmetic on the statutory rates (ORC 5747.02, 2026) shows 3% of everything above $250,000 equals 2.75% of the whole gain at exactly $3,000,000 of business income. Below that, business treatment wins. Above it, the 3% rate costs more than nonbusiness treatment would have.

For a $6,000,000 company sale the engine shows $172,500 of Ohio tax, or $1,375,865 in all. The label follows the facts, not your preference, so the levers at this size are the payroll deduction below or a Section 453 installment sale.

New for 2026: the payroll deduction for selling an Ohio company

For tax years beginning in 2026, ORC 5747.79 lets an owner deduct gain from selling stock or another equity interest in a company when three tests are met: the seller materially participated for the five years before the sale (or made a venture investment of at least $1,000,000), and the company was organized in Ohio and headquartered in Ohio for those same five years.

The deduction is the smaller of the qualifying gain or the deductible payroll: the company's Ohio withholding wages over the five calendar years before the sale, times the percentage of the company you sold, excluding pay to you, your spouse, parents, grandparents, children and grandchildren (ORC 5747.79). Sell 100% of a company that paid $4,000,000 of non-family wages over five years, and up to $4,000,000 of gain is deducted. It comes before the $250,000 business income deduction (ORC 5747.01(A)(34)). The examples above assume none. It covers a sale of the equity itself, so an asset sale by the company does not obviously qualify, which belongs in the asset sale vs stock sale decision early.

City and school district income taxes

Ohio cities tax wages and business net profit, not investment gains. ORC 718.01 excludes intangible income, which includes capital gains from stock, LLC interests and other intangible property. For a business net profit, gain on Section 1221 and 1231 assets is deducted, except the part that is Section 1245 or 1250 recapture (ORC 718.01(E)(4)). So an asset sale can put equipment recapture into the city net profit tax even though the rest of the gain stays out.

School district income tax is different. In a traditional-base district, the tax uses Ohio income including capital gains and adds back the business income deduction; in an earned-income-base district, gains are outside the base (Ohio Department of Taxation SDIT guide, January 2026).

Selling through a company: the commercial activity tax

Ohio has no corporate income tax on most businesses. It has the commercial activity tax instead: 0.26% of taxable gross receipts above an exclusion of $6,000,000 per year, beginning 2025 (ORC 5751.01(R) and 5751.03). Receipts from selling Section 1221 or 1231 assets are excluded from gross receipts no matter how long the company held them (ORC 5751.01(F)(2)(c)), which covers real estate, equipment and goodwill. Inventory sold in bulk to the buyer is ordinary receipts, so the purchase price allocation matters here as well as on the federal return.

Nonresidents, moving away and installment notes

Ohio allocates gain on real property to the state where it sits and gain on intangibles to your domicile at the time of sale (ORC 5747.20). That second rule helps owners less than it sounds: anyone who held at least 20% of a closely held company at any time in the prior three years apportions the gain on selling that interest using the average of the company's Ohio apportionment fractions for the current and two preceding years (ORC 5747.212). A move to Florida before selling an Ohio company therefore leaves much of the gain in Ohio.

Ohio starts from federal adjusted gross income, so an installment sale reported on Form 6252 flows into Ohio income as payments arrive, and a 1031 exchange defers the Ohio gain along with the federal one. Compare destinations in the moving-before-the-sale analysis and the capital gains tax by state table. To model your own sale every way at once, get the Big Sale Tax Analysis.

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