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

No tax on you, 6.5% on your company

Tennessee does not tax wages, capital gains or, since the Hall income tax ended for tax years beginning on or after January 1, 2021, interest and dividends (TN Department of Revenue). A Tennessee resident who sells stock, a membership interest or a rental house in their own name owes no Tennessee income tax on the gain.

Business entities are another story. Every corporation, limited partnership, limited liability company and business trust chartered, registered or doing business in Tennessee pays two taxes: a franchise tax of 0.25% of Tennessee net worth, with a $100 minimum, and an excise tax of 6.5% of Tennessee taxable income (TN Department of Revenue, franchise and excise tax rates, 2026). Net earnings include gain when the entity sells its own assets. A single-member LLC that is ignored for federal tax is still an LLC for this purpose.

Federal tax applies either way: 0%, 15% or 20% on long-term gain, 20% above $613,700 of joint taxable income for 2026 (Rev. Proc. 2025-32), explained in the federal capital gains guide.

Worked example: what a Tennessee address is worth

A joint-filing couple sells their membership interest in a company for a $2,000,000 long-term gain in 2026. As Tennessee residents selling the interest itself, the engine shows $0 of state tax and $403,365 of total tax caused by the sale, all federal.

The same sale by Georgia residents costs $503,165, which puts the value of the Tennessee address on this deal at $99,800. Moving here before a sale captures that only if the move is real and complete before closing, and only for gains that follow residence; real estate stays taxable where it sits. See the residency change analysis.

Asset sale vs equity sale is a state tax question here

In most states, the asset-versus-stock choice changes the federal character of the gain. In Tennessee it can also decide whether there is any state tax at all. If the LLC sells its equipment, real estate and goodwill, the gain flows into the LLC's net earnings and the 6.5% excise tax applies at the entity level before any money reaches you: on $1,000,000 of gain, that is $65,000 (6.5% rate, TN Department of Revenue, 2026). If you sell your membership interest instead, the gain is yours, and Tennessee does not tax individuals.

Buyers usually prefer assets for the basis step-up. That makes the excise tax a negotiating point, the way recapture is in other deals: a buyer who insists on an asset purchase, or a deemed asset purchase, is asking the seller to absorb a Tennessee entity tax. Model both shapes before the letter of intent; the asset sale vs stock sale guide and the purchase price allocation analysis cover the federal side, and your CPA should confirm the excise computation.

Family entities, farms and rentals: the FONCE exemption

Many Tennessee families hold land and rentals in an LLC or limited partnership. Those entities can escape franchise and excise tax as a family-owned non-corporate entity (FONCE) if at least 95% of the voting rights, capital or profits belong to relatives, trusts for them, or a deceased relative's estate, and at least 66.67% of the entity's activity is producing passive investment income, or passive income plus farming (TN Department of Revenue FONCE rules, 2026). Passive investment income includes rents from farm property and from residential property with no more than four units at one location, plus gain on stock or securities.

Two points matter for a seller. Commercial rents and larger apartment complexes do not count as passive income here, so a family LLC owning a shopping center is usually taxable. And the exemption requires an application and annual renewal, so confirm it is current before the sale year. Farm sellers should also read the farmland capital gains guide.

Recordation taxes when real estate changes hands

Tennessee collects recordation tax through the county register of deeds: a realty transfer tax of $0.37 per $100 of the purchase price, which the buyer pays, and a mortgage tax of $0.115 per $100 of indebtedness, with the first $2,000 exempt, paid by the debtor (TN Department of Revenue). In a seller-financed sale, the buyer's deed of trust securing your note is a recorded instrument of indebtedness, so the buyer owes mortgage tax on it. That is a closing cost to price in when you offer seller financing or a Section 453 installment sale.

No inheritance tax since 2016

Tennessee's inheritance tax is not imposed on deaths after December 31, 2015 (TN Department of Revenue). With no state estate tax, no inheritance tax and no tax on an individual's gains, the main state-level question for an older Tennessee owner is the entity excise tax on an asset sale, weighed against the federal basis step-up for heirs; see holding for the step-up. Compare capital gains tax by state, including Kentucky and Georgia, or read the overview of states with no capital gains tax. To see every path on your own sale, get the Big Sale Tax Analysis.

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Frequently asked questions