Idaho does not have a separate capital gains tax. It taxes gains as ordinary income, then lets you subtract up to 60% of the capital gain net income from the sale of qualifying Idaho property. The deduction is not automatic. You compute it on Form CG, and it only applies to gain from property that meets Idaho's location, type and holding-period tests.
This guide covers what counts, what does not, how the math works, what happens with a home sale, and where owners of pass-through entities most often slip.
TL;DR
- Idaho allows a deduction of up to 60% of capital gain net income from the sale or exchange of qualifying Idaho property.
- Property must have an Idaho situs and meet a holding period: 12 months for most real property, 24 months for cattle, horses and Idaho-grown timber.
- Stocks, bonds and interests in an LLC or S corporation do not qualify, and neither does out-of-state property.
- You claim it with Form CG, carried to Form 39R (residents) or Form 39NR (nonresidents and part-year residents).
- Timing and entity structure decide the result, so plan before the sale closes, not after.
Table of Contents
- What the Idaho capital gains deduction is
- What the math looks like
- Which Idaho property qualifies
- What does not qualify
- Holding periods and timing
- Selling your home
- Pass-through entities and nonresident owners
- Records to keep
- Our perspective
- Plan the sale with us
- FAQ
- Sources
What the Idaho capital gains deduction is
Under Idaho Code § 63-3022H, an individual who reports capital gain net income in figuring Idaho taxable income may deduct 80% of the income from qualified property sold in tax year 2001, and 60% in the years after. The Tax Commission confirms that 2001 was the only year at 80%, so today the figure is 60%.
People search for this as a deduction, an exclusion or an exemption. Those words are not interchangeable:
- Idaho deduction: a subtraction on your Idaho return that reduces the gain Idaho taxes. This is the 60% rule.
- Federal exclusion: a federal rule, such as the home-sale exclusion, that removes some gain from federal taxable income before Idaho ever sees it.
- Idaho exemption: Idaho has no stand-alone state exemption for capital gains. What it offers is the deduction described here.
Because Idaho starts from federal taxable income, anything the federal rules exclude is already out of the picture. The Idaho deduction then works on what remains.
What the math looks like
The deduction is 60% of the qualifying net gain, but it can never exceed the capital gain net income actually included in your federal adjusted gross income. Idaho Code also says gains the Internal Revenue Code treats as ordinary income do not qualify, and the deduction is reduced by any federal capital gains deduction relating to that property.
Here is an illustrative example. The tax rate is assumed at a flat 5% to keep the arithmetic clean, so check the current Idaho rate for your own return.
| Step | Amount |
|---|---|
| Net qualifying gain on Idaho land held 3 years | $500,000 |
| Idaho deduction at 60% | $300,000 |
| Gain left in Idaho taxable income | $200,000 |
| Idaho tax at an assumed 5% | $10,000 |
| Idaho tax with no deduction at the same rate | $25,000 |
The deduction effectively shrinks the share of the gain that Idaho taxes to 40%. On a large sale, that is the difference between a manageable bill and a painful one.
How Form CG calculates it
The 2025 Form CG instructions walk through eleven lines. In plain terms:
- List qualifying gains and losses from sales of Idaho property, with a description, Idaho location, dates acquired and sold, sales price, basis and gain or loss.
- Add the taxable gain from your Idaho home sale, taken from federal Schedule D.
- Add qualifying gain or loss from installment sales.
- Add eligible capital gain net income from federal Form 4797.
- Add your share of qualifying gain or loss from pass-through entities.
- Total the gains and losses, then subtract any qualifying capital loss carryover from the prior year.
- Take 60% of the net qualifying gain.
- Compare that amount to the capital gain net income included in your federal adjusted gross income, and use the smaller one.
The smaller amount goes on Form 39R Part B line 10 for residents, or Form 39NR Part B line 6 for nonresidents and part-year residents. The Tax Commission lists the 2025 version as current, with prior-year versions posted for amended returns.
Which Idaho property qualifies
The statute defines qualified property as property held by an individual, estate, trust, S corporation, partnership or LLC that had an Idaho situs when it was sold and falls into one of these groups, per Idaho Code § 63-3022H(3):
| Property type | Holding period |
|---|---|
| Real property in Idaho | 12 months |
| Tangible personal property used in Idaho by a revenue-producing enterprise | 12 months |
| Cattle or horses held for breeding, draft, dairy or sporting purposes | 24 months |
| Other breeding livestock | 12 months |
| Timber grown in Idaho | 24 months |
| Partnership interest (not publicly traded), to the extent gain is attributable to qualified real property held by the partnership | 12 months |
The Tax Commission adds that real property sold before January 1, 2005 needed 18 months. For any sale you are reporting today, 12 months applies.
What counts as real property
For this deduction, real property means land and includes a qualified conservation easement conveyed to a qualified organization, certain federal or state grazing permits transferred with the base property, and other section 1250 property conveyed in perpetuity where the transfer must be in writing under Idaho Code § 9-503. That is a narrower definition than most owners assume, so confirm how your asset is classified before you rely on the deduction.
Depreciated equipment
Property depreciated under section 1245 of the Internal Revenue Code is not eligible to be treated as real property for this purpose. Equipment sold at a gain is often recaptured as ordinary income anyway, which is another reason it generally falls outside the deduction. Depreciation choices made years earlier can change what you keep at sale. Our guide to bonus depreciation explains how that trade-off works.
What does not qualify
The Tax Commission is direct: gains from property not located in Idaho, tangible personal property not used by a revenue-producing enterprise, and intangibles such as stocks, bonds, and interests in a partnership, LLC or S corporation do not qualify. The administrative rule, IDAPA 35.01.01.171, says the same and carves out only the partnership interests described in § 63-3022H(3)(f).
Three situations deserve special attention:
- Selling business stock or membership units. If you sell your LLC or S corporation interest rather than the assets, the gain is on an intangible and the deduction does not apply. An asset sale can produce a different result. Structure matters here, and it is a question to settle before signing a purchase agreement.
- Selling a brokerage portfolio. Publicly traded stock and bonds are intangible property. No Idaho deduction.
- Out-of-state property. A rental in another state does not qualify, even if you live in Idaho.
Holding periods and timing
Idaho's holding periods generally follow Sections 1223 and 735 of the Internal Revenue Code. One Idaho-specific twist: in a tax-free exchange, the holding period of property you gave up is not added to the property you received if what you gave up was nonqualifying property. If you swap into Idaho real estate, the clock on the new property can be affected by what you traded out of. Walking through a 1031 exchange timeline before you commit helps you see where the 12-month clock starts and stops. Our 1031 exchange guide for Idaho investors covers the investor-side mechanics.
Installment sales
For installment sales, Idaho tests the holding period using the law for the year of the sale. If the holding period is not met in that year, the gain is not from qualified property even though payments arrive in later years. In practice, closing a week before the 12-month mark can cost you the deduction on every payment that follows. Include federal Form 6252 with Form CG for these sales. For more on structuring them, see how the tax works on an installment sale of a business.
Selling your home
A home sale can qualify, with a layer of federal treatment first. Form CG has a dedicated line for the taxable gain from the sale of your Idaho home, pulled from federal Schedule D. That wording matters: only the gain that remains taxable after any federal home-sale exclusion flows into the Idaho calculation. If the federal exclusion wipes out the gain, there is nothing left for Idaho to deduct. If your gain is larger than the federal exclusion, the taxable remainder, if the home was real property in Idaho held at least 12 months, is eligible for the 60% deduction.
As an example, suppose a home sale leaves $100,000 of taxable gain on Schedule D after the federal exclusion. Idaho's deduction would be $60,000, leaving $40,000 in Idaho taxable income. Keep your closing statement and records of improvements, since both support the basis figure on Form CG.
Pass-through entities and nonresident owners
If your gain comes through an S corporation or partnership, the entity calculates it and reports it to you. Per the Form CG instructions, the entity enters the amount on Form ID K-1 Part VI line 36, completes details such as property type, date of sale and holding period, and sends the K-1 to the owner, who claims the deduction on their own Idaho individual return. The owner can include the entity's holding period when testing the holding requirement.
Nonresident owners follow a narrower path. A nonresident S corporation shareholder or partner computes the deduction only on the portion of qualifying gain allocated or apportioned to Idaho. Part-year residents of multistate entities compute it as the State Tax Commission's rules prescribe. If you recently moved, our look at the tax reality of moving to Idaho covers how residency timing changes the picture.
Records to keep
For every sale you plan to deduct, keep:
- The closing or settlement statement and the contract with dates of acquisition and sale.
- Proof the property was in Idaho on the sale date, such as the parcel number or a property description.
- Basis records: purchase price, improvements, and any depreciation taken.
- Federal Schedule D, Form 4797 or Form 6252, whichever applies.
- Any Form ID K-1 with the pass-through gain and holding period.
- Prior-year capital loss carryover amounts.
Our perspective
Most Idaho owners hear "60% deduction" and assume it covers every gain. In our experience, the real work is in the details the deduction depends on: whether you sell assets or ownership interests, whether the holding period is met in the year of sale, and whether the property sits in Idaho.
We build tax planning around those questions before a sale, not after. For business owners and real estate investors, that means looking at entity structure, depreciation history and timing together. Our approach is designed to turn a sale into a planned event with a known tax cost, rather than a surprise on the return.
The deduction is a good rule. Used with planning, it can keep a meaningful share of a gain working for you. If you are weighing a sale, talk to us while you still have choices.
Melissa
Plan the sale with us
If you own Idaho real estate, a business or multiple entities, the numbers above are only as good as the structure behind them. We offer year-round advisory through Quarterly Tax Strategy Sessions at $9,497 per year or Monthly Tax Advisory at $11,997 per year, and form-based preparation, including an Investor or Rental Owner return at $550, so the Form CG work is done correctly alongside your federal return.
If you are an investor, our guide to real estate professional status pairs well with sale planning, and our high-earner strategy guide shows where gains fit in the wider plan.
FAQ
Does Idaho tax capital gains at a lower rate?
Not as a separate rate. Idaho includes capital gain in taxable income, then lets you subtract up to 60% of the qualifying net gain from Idaho property. The rest is taxed at your regular Idaho income tax rate.
Is there an Idaho capital gains exclusion?
Idaho's relief is a deduction rather than an exclusion, and it is 60% of qualifying capital gain net income. Federal exclusions, such as the home-sale exclusion, apply on the federal return first and reduce what Idaho starts with.
Do I need Form CG every year?
You need it in any year you claim the deduction. Complete Form CG and carry the result to Form 39R or Form 39NR. The deduction cannot exceed the capital gain net income in your federal adjusted gross income.
Does selling my S corporation shares qualify?
Generally no. Interests in an S corporation, LLC or partnership are intangible property, with a limited exception for partnership interests tied to qualified real property. Our Idaho S corporation guide explains how the entity choice shapes outcomes.
Sources
- Capital Gains | Idaho State Tax Commission
- Section 63-3022H, Idaho State Legislature
- Title 63, Chapter 30 Income Tax, Idaho Statutes
- Form CG Capital Gains Deduction, 2025
- Form CG | Idaho State Tax Commission
- IDAPA 35.01.01.171, Idaho Capital Gains Deduction
- IDAPA 35.01.01.173, Idaho Capital Gains Deduction