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

A low threshold makes Virginia a flat tax on big sales

Virginia's brackets have not moved in decades: 2% up to $3,000, 3% to $5,000, 5% to $17,000 and 5.75% above $17,000, the same for single and joint filers (Va. Code 58.1-320, unchanged for 2026). On a seven-figure sale the lower brackets are a rounding error, so plan as if the whole gain is taxed at 5.75%. Virginia gives long-term gains no preference; they enter through federal adjusted gross income (Va. Code 58.1-322) and are taxed like wages.

Proposals in the 2026 session to add a higher bracket for very large incomes did not make it into the Code as published. The federal capital gains guide covers the other layer: 0%, 15% or 20% for 2026, with 20% above $613,700 of joint taxable income (Rev. Proc. 2025-32).

Worked example: why a note helps federally but not in Virginia

A joint-filing couple with $220,000 of other income sells a company for a $2,100,000 long-term gain and $400,000 of equipment recapture in 2026.

• Cash at closing: Virginia tax is $143,750 and total tax is $794,285, an effective 31.8%.
• Five-year note: Virginia stays at $143,750 because every year is still over $17,000 (Va. Code 58.1-320, 2026). Total tax still falls to $680,284, because more of the gain lands in the federal 15% bracket and the surtax shrinks.
• After a real move to Florida: total tax is $650,535; the whole difference, $143,750, is the Virginia piece.

A Section 453 installment sale is still worth modeling in Virginia, but for its federal effect. The moving-before-the-sale analysis explains what Virginia needs to see before it lets go of a resident; real estate in Virginia stays taxable either way.

Your Virginia basis may not match your federal basis

Virginia conforms to the Internal Revenue Code as of December 31, 2025, but excludes the special depreciation allowance under IRC 168(k) (Va. Code 58.1-301(B)(1), 2026). A Virginia owner who took federal bonus depreciation on equipment added it back on the state return and recovered it more slowly. The result at sale: the Virginia adjusted basis in that equipment is often higher than the federal one, so Virginia recapture is smaller than the federal figure. Equipment-heavy sellers, such as contractors, haulers and manufacturers, should make sure their preparer carries the state depreciation schedule into the sale year. The depreciation recapture analysis shows how the federal side works.

Land preservation tax credits: a Virginia farm and estate lever

Virginia gives an income tax credit worth 40% of the fair market value of land or an easement donated for conservation to a qualified agency, for conveyances since 2007 (Va. Code 58.1-512). Three features make it unusual:

• Each taxpayer can use up to $50,000 of credit a year from 2018 onward (Va. Code 58.1-512(C)).
• Unused credit carries forward up to 13 years for most donations under the current limits.
• The credit is transferable, so landowners who cannot use it can sell it to other Virginia taxpayers, and the sale of credits is a separate taxable event.

For a farm family planning to sell part of a property, donating an easement on the rest can produce state credits that offset Virginia tax on the sold piece over several years. Statewide issuance is capped at $75 million a year (2015 and later), so applications need lead time. The conservation easement guide covers the federal deduction side.

The qualified business investment subtraction

Virginia lets taxpayers subtract long-term gain from an investment in a qualified business under Va. Code 58.1-339.4, or certain technology businesses, if the investment was made between April 1, 2010 and June 30, 2020 and held as required (Va. Code 58.1-322.02(24), 2026). Angel investors and early backers of Virginia companies selling those stakes now may owe no Virginia tax on that gain. It does not apply to an owner who claimed the qualified business credit on the same investment, and it does not cover ordinary operating business sales by founders.

Closing costs and nonresident sellers

The seller pays Virginia's grantor tax of 50 cents per $500 of price, roughly 0.1%, excluding liens remaining on the property (Va. Code 58.1-802, 2026), unless the contract shifts it to the buyer. Nonresident sellers of Virginia real estate are not subject to withholding, but they must complete Form R-5 for the real estate reporting person, who files it with Virginia Tax by the 15th of the month after closing (Virginia Tax, 2026). Sales exempt from income tax use Form R-5E. The nonresident still files a Virginia return and pays 5.75% on the Virginia-source gain.

Estate tax and the hold option

Virginia's estate tax is defined as the old federal state death tax credit (Va. Code 58.1-902), a credit that no longer exists federally, so no Virginia estate tax is collected today. Holding appreciated property until death therefore has only federal stakes; the hold-for-step-up analysis runs that math. Get the Big Sale Tax Analysis at /analysis/ to compare cash, a note, a 1031 exchange and land credits for a Virginia sale.

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