StructuredSales.org
StructuredSales.org
Indiana's state rate on a 2026 capital gain is 2.95%, and it is not the whole Indiana bill. Every county also levies a local income tax large enough to matter on a farm or a company sale. There is no long-term preference and no retired-farmer exclusion. Because both rates are flat, an installment sale under IRC §453 changes when Indiana is paid. The amount that can change is federal: the brackets and the 3.8% net investment income tax.
The sellers this page has in mind are concrete: a component shop in Elkhart County tied to the RV industry, a corn and soybean family in the west-central counties, a medical or dental practice in Indianapolis or Fort Wayne, a landlord with a small apartment building. The arithmetic below uses Elkhart County on purpose, so the county line is a real rate from the Department's notice rather than a statewide average.
The Department's rates page says the individual adjusted gross income tax for 2026 is 2.95% and will adjust in 2027 to 2.90%. Capital gain is in that base. Indiana taxable income begins with federal adjusted gross income, so gain a resident reports on Form 6252 is generally Indiana income in the same year. There is no separate schedule that discounts long-term gain.
If that published step-down holds, a dollar of Indiana-taxable gain recognized in 2027 is taxed at 2.90% rather than 2.95%. The illustration later holds 2.95% constant, so it does not assume the step-down. Do not build a sale around a tenth of a point, and do not ignore a rate the Department has already published.
Departmental Notice #1, effective October 1, 2026, lists every county. Rates are not uniform, and they can change in January and October. The county is the one where you live on January 1, or, if you live outside Indiana that day, the county of your principal work or business. Elkhart's rate on that notice is 2.00% (county code 20). With the 2.95% state rate, an Elkhart resident's combined rate is 4.95% before small exemptions. Hamilton County is lower on the same notice. Use your own line.
County tax follows the January 1 snapshot, not the day you close. An Elkhart resident on January 1, 2026 owes Elkhart tax for that year on Indiana adjusted gross income, including installment gain recognized that year. A seller who has established residence in another state before January 1 of a later year may drop the county tax for that later year, while state tax on Indiana-source gain can continue.
A structured installment sale keeps you from taking receipt of the deferred price at closing. The agreement assigns that portion to an assignment company, which funds the schedule with an annuity from a highly rated life insurer. Each payment is return of basis, gain, and ordinary interest, reported on Form 6252. Indiana, starting from federal AGI, generally picks up the gain in the year the federal return does. The IRC §453 overview and the tax-treatment guide walk through the federal pieces.
Three federal limits are larger than the county rate on many sales. Depreciation recapture under §1245 is recognized in the year of sale under §453(i), even when goodwill and land are deferred. If installment obligations arising during the year and outstanding at year-end exceed $5 million, §453A charges interest on the deferred federal tax. Use the §453A calculator when the price is near that line. A sale of depreciable property to a related person is generally barred by §453(g), and a resale by a related buyer inside two years can accelerate gain under §453(e). Indiana follows the accelerated federal number if it is in AGI.
Nonresidents pay Indiana tax on Indiana-source income. Gain on Indiana real property stays Indiana-source as installment payments arrive after a move. Gain on corporate stock is more often sourced to the seller's residence, with exceptions when the interest is tied to Indiana business property. Pass-through sales are apportioned. Indiana land stays Indiana income. Everything else needs the return.
A large share of the gain on an Indiana farm sale is in land whose basis was set decades ago, or by an inheritance that prices have since outgrown. There is no counterpart to the Iowa retired-farmer exclusion. The full gain is in the state base and, while you are a resident, in the county base. The farmland guide covers allocation: tile, bins, and equipment produce recapture due at closing, and the land is what an installment schedule can spread. Heirs should read inherited farmland before treating basis as zero. A 1031 exchange is available for real property held for business or investment if you want replacement property. Many retiring operators do not.
Elkhart, Kosciusko, and Lagrange counties have a different seller: founders of component, upholstery, metal, and assembly shops built around RV and manufactured-housing production. Goodwill may be capital gain. Machinery will have recapture. The same pattern shows up in tool-and-die and HVAC companies, which is why the HVAC sale page and the business-sale page belong in the file. Physician and dental practices in Marion, Allen, and Hamilton counties are closer to the medical and dental articles. The county rate still applies to a resident. Ohio, Illinois, Kentucky, and Michigan are not interchangeable with a 2.95% headline.
A married couple sells the goodwill and the land of a custom metal shop. The price allocated to those assets is $1,500,000. Basis is $300,000. Long-term gain eligible for the federal 0/15/20% rates is $1,200,000. Equipment is sold at tax basis, so recapture is outside the table. They live in Elkhart County on January 1 of each year in the illustration, so the county rate stays 2.00% as published in Departmental Notice #1 effective October 1, 2026. The spouse's teaching salary of $70,000 continues. They file jointly, take the 2026 federal standard deduction of $32,200, and do not itemize. Other income already absorbs Indiana's small exemptions, so the estimate applies 2.95% and 2.00% to the gain itself.
Principal is paid over six years. The gross-profit percentage is 80%, so each year they recognize $200,000 of gain. Thresholds are from Revenue Procedure 2025-32. NIIT is 3.8% above $250,000 of joint MAGI. The state rate is held at 2.95% even where the Department says 2027 will be 2.90%. Interest, the time value of money, and any federal deduction for state tax are omitted. Figures are rounded estimates.
| Estimate | Lump sum | Six-year total |
|---|---|---|
| Long-term gain recognized | $1,200,000 | $1,200,000 |
| Federal tax at 0% / 15% / 20% | $202,040 | $125,010 |
| Federal NIIT at 3.8% | $38,760 | $4,560 |
| Indiana state tax at 2.95% | $35,400 | $35,400 |
| Elkhart County tax at 2.00% | $24,000 | $24,000 |
| Estimated total on the gain | $300,200 | $188,970 |
The illustrative difference is about $111,230, and on these stay-in-Elkhart facts it is federal. The lump sum puts $624,100 in the 20% bracket and applies the NIIT to $1,020,000. Each year, $200,000 of gain sits on $37,800 of ordinary taxable income: $61,100 is at 0%, the rest at 15%, and the NIIT hits only $20,000. State tax stays $35,400 and county tax stays $24,000. Leaving before a later January 1 could drop the county column. The 2027 rate of 2.90% is not in the table. The calculator will not know your January 1 county.
The Indiana Department of Revenue states that the individual adjusted gross income tax rate for 2026 is 2.95%, and that it will adjust to 2.90% in 2027. There is no preferential rate for long-term capital gains. The county income tax is additional and depends on the county.
Departmental Notice #1 uses the county of residence on January 1 of the tax year. A person who lives outside Indiana on January 1 is taxed by the Indiana county of principal work or business as of that date, if there is one. County rates can change in January and October. Look up the county on the notice in effect for the year, rather than using a statewide average.
Gain from Indiana real property stays Indiana-source as installment payments arrive, so the state tax can continue. County tax follows the January 1 residence and principal-business rules, and it may stop in a later year if you are no longer an Indiana resident and have no Indiana principal business. Have a preparer apply those rules to the schedule before you count on either result.
No. Indiana has no exclusion comparable to Iowa's retired-farmer deduction. Farmland gain is in the Indiana base. With a flat state rate, splitting the gain across years changes timing, not the total state tax, apart from a later rate change such as the scheduled 2027 adjustment to 2.90%.
Depreciation recapture is taxed in the year of sale under §453(i) and §1245. Installment obligations above $5 million can trigger the §453A interest charge on deferred federal tax. Sales to related parties have additional limits under §453(e) and §453(g). Indiana conformity to federal adjusted gross income does not remove those federal rules.
Last reviewed: October 22, 2026.
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