Arkansas taxes only half of a long-term gain
Arkansas is generous with long-term gains. Half of eligible net long-term capital gain is excluded from Arkansas income, and any eligible net gain above $10 million is excluded entirely. Short-term gains get no exclusion and are taxed like wages. Act 2 of the 2026 session cut the top rate to 3.7% for tax years starting January 1, 2026.
At the 3.7% top rate the 50% exclusion holds a long-term gain to 1.85% of the gain, but a gain that lifts net income past $94,700 also moves the whole return onto the higher-income table, where every dollar above $4,700 is taxed at 3.7%. For a single filer whose Arkansas taxable income, after the exclusion has already been applied, rises from $60,000 to $110,000, the revised schedule raises the tax from $1,851 to $3,988: $2,137 on what would be a $100,000 long-term gain, or 2.14%. Married couples who file separately on the same Arkansas return figure tax on each spouse’s column, so keep both columns when testing a sale.
| Parameter | Value | Effective | Primary source |
|---|---|---|---|
| Net long-term capital gain taxed | 50% of the Arkansas net capital gain | Continuing AR1000D mechanics | DFA AR1000D, lines 7a to 8 |
| Gain cap | Net capital gain above $10,000,000 is excluded before the 50% step | Continuing AR1000D mechanics | DFA AR1000D, line 7b |
| Short-term capital gain | Taxed in full | Continuing AR1000D mechanics | DFA AR1000D, line 11 |
| Rates at net income of $94,700 or less | 0% to $5,599; 2%; 3%; 3.4%; 3.7% from $26,400 | Tax years beginning on or after January 1, 2026 | Act 2 of 2026, section 1(a)(4)(A) |
| Rates above $94,700 of net income | 2% on the first $4,700 and 3.7% on the rest, less a bracket adjustment from $290 down to $10 between $94,701 and $97,600 | Tax years beginning on or after January 1, 2026 | Act 2 of 2026, section 1(a)(4)(B) and (C) |
Arkansas’s revised 2026 annual schedule
Arkansas enacted Act 2 on May 6, 2026 with a 3.7% top rate for tax years beginning January 1, 2026. The revised 2026 AR1000ES version ending “_2.pdf” agrees with that law; the earlier version printed 3.9% and is obsolete for this estimate. Taxable income through $5,599 is untaxed. The revised schedule retains printed dollar bases and 29 distinct transition bands between $94,701 and $97,600.
Arkansas capital preparation starts with recognized gain, state basis and the required long-term / short-term loss netting. Continuing AR1000D mechanics distinguish the 50% exclusion for eligible net long-term gain from a tax-rate reduction and cap positive eligible net long-term gain at $10 million before including 50% of the capped amount. Thus $12 million of eligible net long-term gain produces $5 million taxable in that category. Prepare both annual net taxable balances after the actual applicable exclusion and deductions; do not halve the entire federal sale or short-term income automatically.
The annual estimate rounds each spouse’s schedule tax to whole dollars. Married taxpayers filing separately on the same Arkansas return must supply both approved taxable columns; one aggregate income is insufficient. Enter complete usable credits separately, including only approved personal and dependent amounts. Prepared final-liability mode handles unsupported categories, other taxes and final-return table effects. Unknown spouse bases or credits keep combined tax unresolved.
Worked example: a $100,000 long-term gain in Arkansas
A full-year Arkansas resident filing single sells land held for six years for $250,000 with an adjusted basis of $150,000, a $100,000 long-term gain, and has no other capital transactions in 2026. On the AR1000D the Arkansas net capital gain is $100,000, well under the $10 million cap on line 7b, and line 8 multiplies it by 50%. Only $50,000 enters Arkansas income.
Assume Arkansas net taxable income of $150,000 before the sale, so both scenarios sit above $97,600 where no bracket adjustment applies. Act 2 taxes that return at 2% on the first $4,700 and 3.7% on everything above it, so the extra $50,000 adds $50,000 × 3.7% = $1,850. That is 1.85% of the $100,000 gain. Had the land been held for less than a year, the full $100,000 would count and the same arithmetic would give $3,700.
The lower brackets matter only when the sale carries the return across $94,700. The worksheet compares approved Arkansas taxable income with and without the sale, so it captures that jump when you enter both balances after the exclusion; enter half of the eligible long-term gain, not the whole federal amount, and both spouse columns if you file separately on one return.
Arkansas preparation checklist
- Revised May 6 schedule, transition band and both spouse columns where required
- Positive eligible gain capped before 50% inclusion
- Both Arkansas spouse columns and personal credit