StructuredSales.org
StructuredSales.org
Connecticut's top rate is 6.99%, and benefit recapture already makes a large year look close to a flat tax. A capital-gains surcharge is a separate story. As of this review it is a bill that did not become law, and its own text would not have applied to a 2026 sale. The rate schedule and the recapture table are what belong in a 2026 closing model.
Capital gain is ordinary income. There is no long-term discount. A structured installment sale under IRC §453 can move a sale out of the top bands and out of fully phased-in recapture. On many Connecticut facts the state difference is modest, and the federal 20% band plus the 3.8% net investment income tax is where the dollars are. Saying that plainly is more useful than quoting a surcharge that is not on the books.
The Department of Revenue Services prints the rate schedule in the 2026 income-tax calculation used for withholding, and the Tax Foundation's January 1, 2026 bracket table matches it. Joint filers pay 2% on the first $20,000, 4.5% to $100,000, 5.5% to $200,000, 6% to $400,000, 6.5% to $500,000, 6.9% to $1,000,000, and 6.99% above $1,000,000. Single filers reach 6.99% above $500,000. The brackets are statutory dollar amounts. They are not widened each year for inflation the way some states' brackets are. A long-term gain uses this same ladder. So does a short-term gain. So do wages.
Two add-ons sit on top of the initial tax, and neither is a capital-gains surcharge. The 2% phase-out add-back, Table C in the 2026 withholding instructions, claws back the bottom rate. For joint filers it reaches a maximum of $500 once Connecticut adjusted gross income is over $145,500. Benefit recapture, Table D, is larger. For joint filers it is zero through $210,000, it is $500 when income is between $300,000 and $400,000, and it reaches $6,800 once income is over $1,080,000. Single filers top out at a $3,400 recapture add-on. Personal exemptions and credits phase out as income rises. The illustration below treats both as zero. Confirm that on your own AGI.
Once recapture is fully in, additional income is taxed at 6.99% and the add-ons are flat dollars, not extra rates. A $6,800 recapture on a multi-million-dollar gain is real and, next to the tax itself, small. The gradient that installment timing can still use is the gap between 6%, 6.5%, 6.9%, and 6.99%, plus whether you are in the partial-recapture rows or the $6,800 row. It is a compressed gradient. Massachusetts adds four full points above its surtax line. New York climbs much higher. Connecticut does not. Model Connecticut as Connecticut.
Substitute Senate Bill 510, "An Act Establishing a Capital Gains Surcharge," received a joint favorable substitute from the Finance, Revenue and Bonding Committee on April 1, 2026. The Office of Legislative Research analysis says the bill would impose a 1.75% surcharge on net capital gain starting with the 2027 tax year, for taxpayers other than trusts and estates. The thresholds in that analysis are $1 million for single filers and married filing separately, $1.6 million for heads of household, and $2 million for joint filers. The bill text described a one-time exclusion for gain on a Connecticut primary residence or on an ownership interest in a business. The surcharge itself was written to begin in 2027.
The General Assembly status page for the bill shows it placed on the Senate calendar on April 20, 2026. It does not show passage or a public act. It is not in the session's list of bills passed through August 31, 2026. A proposal can be reintroduced. It is not a rate you owe on a 2026 sale, and even the 2026 text would not have started until 2027. If you are shown a spreadsheet that adds 1.75% "because Connecticut passed it," ask for the public-act number. This article does not have one.
The Naugatuck Valley still has manufacturers whose owners are ready to exit. Groton and New London have suppliers around submarine work. Hartford has insurance and financial firms. Fairfield County has closely held companies and a great deal of portfolio stock. The shoreline from Guilford to Madison has houses that are rentals, not primary homes, with basis from a purchase in another decade. All of that gain, if you are a resident, runs through the ordinary brackets.
Connecticut taxes residents broadly and taxes nonresidents on Connecticut-source income. Gain from real property in Connecticut is Connecticut-source. Installment payments on a shoreline rental generally remain Connecticut income as they are recognized, including after a move. Gain on stock and other intangibles depends on residence and on whether the business itself created Connecticut-source income. Domicile is where you live. Have a Connecticut advisor source the sale.
A pass-through entity tax, elected at the entity, is a separate regime at the top individual rate and is aimed at the entity's Connecticut business income. A sale of C corporation stock is the shareholder's gain, not an automatic pass-through-entity-tax event. An asset sale inside an LLC can be. The distinction belongs in the purchase agreement, next to purchase-price allocation and depreciation recapture. Ordinary recapture under §1245 is recognized in the year of sale even when the rest of the price is deferred. Our trades-business guide is written around that equipment problem, and it fits a Valley shop as well as an HVAC company.
A married couple has $180,000 of Connecticut adjusted gross income before the sale. They sell stock in a precision manufacturer. Long-term gain is $1,600,000. They compare one-year recognition with eight slices of $200,000. The illustration uses the joint rate schedule, the maximum $500 phase-out add-back in every year because income is over $145,500, and Table D recapture: $6,800 on the lump sum, because income is over $1,080,000, and $500 in each installment year, because $380,000 falls in the $300,000-to-$400,000 recapture row. Exemptions and credits are treated as zero. The personal exemption phase-out supports that at these incomes. Federal tax uses 2026 joint long-term brackets and the 3.8% net investment income tax. Interest on the payments is omitted. The open installment balance is under $5 million, so §453A interest is not in the sketch. Rounded from the rate schedule. Estimates only.
| Lump sum | Eight installments | |
|---|---|---|
| Connecticut AGI | $1,780,000 once | $380,000 a year |
| Connecticut tax on the gain | $115,422 | $99,200 |
| Federal long-term capital gain tax | $298,315 | $240,000 |
| Federal 3.8% net investment income tax | $58,140 | $39,520 |
| Combined tax on the gain | $471,877 | $378,720 |
Connecticut tax on the gain is about $16,200 lower. The lump sum is in the 6.99% band with the full $6,800 recapture. Each installment year is in the 6% band with only $500 of recapture. The federal difference in this sketch is about $76,900, because the installment years stay inside the 15% long-term bracket. Combined, the illustration is about $93,200 lower. Adding the 1.75% proposal models a bill that is not law. A different filing status, a high-wage year, or an asset sale full of recapture would move the Connecticut column first. The calculator does not reproduce Table D. Your CPA should.
Do not add a capital-gains surcharge to a 2026 Connecticut estimate. Benefit recapture is a dollar amount from a table. These figures are estimates under the assumptions above, not a promise of savings.
Ask whether the price is stock, assets, or both, and which pieces stay Connecticut-source if you might not be a resident later. Ask where this year's income sits on Table D. Put depreciation recapture in the closing year on purpose. Read selling a business for the federal stack and retirement income after a sale if the payments are meant to replace a salary. The assignment of the deferred price has to be in the contract before you receive the money.
No. Capital gain is ordinary income. The top statutory rate is 6.99%, which for a joint return starts above $1,000,000 and for a single return starts above $500,000. There is no lower long-term rate. Federal 0%, 15%, and 20% rates, and the 3.8% net investment income tax, apply on top.
It is a dollar add-on, from a table, that claws back the benefit of the lower brackets as Connecticut adjusted gross income rises. On the 2026 withholding tables for joint filers, recapture is zero through $210,000 and reaches $6,800 once income is over $1,080,000. A separate add-back phases out the 2% bracket and tops out at $500 for joint filers. At a high enough income the tax behaves like a flat 6.99%. It is not a second percentage on capital gains.
No. Substitute Senate Bill 510 of 2026 would have imposed a 1.75% surcharge on net capital gain starting with the 2027 tax year, for taxpayers over income thresholds, with a one-time exclusion for a Connecticut primary residence or an ownership interest in a business. The Finance, Revenue and Bonding Committee gave it a joint favorable substitute. As of the General Assembly status page it was on the Senate calendar and was not a public act. It is not part of 2026 tax. Do not model it as current law.
Because a lump sum is more likely to sit in the 6.9% and 6.99% bands and to pay the fully phased-in recapture add-on, while smaller annual slices can remain in a lower band with only partial recapture. The Connecticut difference is real and often smaller than the federal difference from staying in the 15% long-term bracket and shrinking the 3.8% net investment income tax. Run both. Do not buy a structure for a state delta that your facts do not produce.
Connecticut taxes residents on Connecticut income and nonresidents on Connecticut-source income. Gain from Connecticut real property is Connecticut-source, and later installment payments on that property generally stay taxable here. Gain on intangible property is a different sourcing question and depends on residence and on what the business did in Connecticut. Changing domicile is a facts test. This page is not a plan for leaving.
Last reviewed: October 22, 2026.
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