Ohio’s 2026 rate and the business income deduction
Ohio collapsed its brackets for 2026: no tax on nonbusiness income up to $26,050, then $332 plus 2.75% of the excess. Business income has its own path, with a deduction for the first $250,000 of business income ($125,000 married filing separately) and a flat 3% on the rest, so whether a gain counts as business income can change the answer considerably.
Ohio’s cities do not tax capital gains, because municipal income tax excludes intangible income such as gains, interest and dividends. A sale of an ordinary investment therefore affects only the state return and any school district income tax that uses the state base. The guide below covers the classification and exemption rules in detail.
Ohio capital gains in 2026: annual bases, exemptions and credit changes
An Ohio resident selling an ordinary investment needs two annual state scenarios: one without the sale and one with it. The state calculation depends on approved Ohio taxable income, actual gain classification and credit eligibility in each scenario. This worksheet provides a resident mode with separate nonbusiness and taxable-business amounts, followed by full ordinary nonrefundable credits. It also retains the prepared final-liability mode when the transaction needs additional taxes, credit recapture, refundable credits or local tax. Neither mode treats all sale proceeds as gain.
For tax years beginning in 2026, Ohio Revised Code 5747.02(A)(3)(c) supplies $332 plus 2.75% of the nonbusiness taxable balance above $26,050. The preceding paragraph imposes no nonbusiness tax when that balance is at or below $26,050. The resident model follows these literal clauses. At $26,050 its nonbusiness tax is zero; at $26,051 it estimates $332.03 after cent rounding. This is a threshold jump in the enacted formula. It is not a zero-rate band that can be reconstructed by applying 2.75% only to the excess.
The current statute prints historical 2024 and 2025 tables alongside the operative 2026 clause. The 2026 estimated-payment instructions published at the October 2 review still display the older $342 base and 3.125% upper rate. Those printed rates do not control this resident model. House Bill 96’s actual final legislative analysis confirms the 2026 formula and the 2025–2026 index freeze in uncodified Section 757.120(A). A document heading alone is insufficient to establish that every table inside has the current enacted rate.
Ohio starts its adjustments from federal adjusted gross income, rather than federal ordinary taxable income after the federal standard deduction. State additions, exclusions, basis differences and gain deductions can change the annual Ohio amount. Prepare these items separately for both scenarios. The federal ordinary-income field in this calculator controls only its federal tax comparison. The federal NIIT MAGI fields are also separate; entering one federal number does not silently populate an Ohio taxable balance.
Taxable business income has its own 3% calculation under 5747.02(A)(4). The model’s business field is the actual taxable business base remaining after approved business deductions and any excess personal-exemption allocation. It is not gross business receipts, all federal Schedule D gain or the value of a business-related asset. Prepare the Ohio business versus nonbusiness classification and the applicable deduction before entering either field. If exemptions exceed Ohio adjusted gross income less taxable business income, the statute applies the excess to taxable business income before the 3% tax.
For the nonbusiness field, enter the approved nonnegative taxable balance after the state adjustments and personal, spouse and dependent exemptions allocated to that balance. The frozen indexed exemption units are $2,400 for modified Ohio AGI at or below $40,000, $2,150 above $40,000 through $80,000 and $1,900 above $80,000. The current 2026 exemption statute requires modified Ohio AGI strictly below $500,000. At $500,000, the statutory right to these exemptions ends. A sale can therefore change more than the amount taxed at 2.75%. The old 2025 booklet’s $750,000 eligibility limit is not the current 2026 limit.
Current 5747.01(II), effective March 5, 2026, starts modified Ohio AGI from Ohio AGI and adds two deductions back: the (A)(28) business-income deduction and the (A)(34) deduction for a qualifying capital gain or payroll. The 2025 booklet, still the current one, describes only the business add-back, so it understates what this definition now includes. Prepare the actual modified amount when checking exemptions and income-tested credits, even if an approved gain deduction reduced Ohio AGI. Ohio MAGI and federal NIIT MAGI are different measurements with different purposes.
A qualifying gain deduction under (A)(34) requires the actual statutory business or payroll conditions and coordination with the business deduction; it is not a general exclusion for every Ohio resident’s investment gain. The distinct (A)(35) deduction concerns gains from qualifying venture-capital companies and its own company, investment and recapture conditions. Do not classify these deductions interchangeably or assume the same MAGI addback. This tool accepts the resulting approved bases rather than making a deduction election from the sale label.
Enter the FULL approved ordinary nonrefundable-credit total for each annual scenario, including credits that are unchanged by the sale. Prepare their eligibility, ordering and limits against that scenario’s annual state tax. Retirement and senior credits have income tests; the annual exemption credit has a different test; the joint-filing credit depends on each spouse’s qualifying income and the tax remaining after preceding credits. A gain can change an income test while failing to count as qualifying spouse income. This resident mode caps the approved ordinary credit total at annual tax and never invents a refund from unused nonrefundable credits.
For a worked nonbusiness example, assume the two approved taxable balances are $100,000 and $200,000, both taxable-business bases are zero and both approved ordinary-credit totals are zero. The annual estimates are $2,365.63 and $5,115.63, producing a $2,750 state change. With the calculator’s default ordinary long-term federal sale and zero modeled NIIT, the combined tax change is $17,750. These are illustrative approved bases, not a claim that a $100,000 federal gain always adds $100,000 to Ohio taxable income.
If the same example has $250 of approved credits before the sale and none after it, the annual state difference becomes $3,000. The additional $250 is the lost credit, not another gain rate. Conversely, identical $100,000 state taxable balances with approved credits increasing from zero to $500 produce a negative $500 state change. The worksheet preserves that decrease. It does not force every comparison to be positive. Prepared annual state bases may also decrease when actual state treatment warrants it.
A confirmed scenario with zero nonbusiness balance and a taxable-business base increasing from $10,000 to $30,000 produces a $600 state change before credit changes. That amount comes from the separate 3% business calculation. For an ordinary personal investment, establish that its gain belongs in the nonbusiness scenario instead. Enter zero for an absent business amount only after it is confirmed; a blank business field remains unknown and keeps the combined tax unresolved.
Federal holding period, approved federal exclusion, offsets, other preferential income and NIIT must still be prepared independently. A federal home-sale exclusion does not prove every Ohio adjustment, and a short-term federal sale does not automatically choose the Ohio business category. Other federal deductions and complete-return effects are held outside this ordinary-sale worksheet. If the asset involves special-rate components, recapture or another unsupported federal category, the federal comparison remains unknown rather than providing a misleading combined total.
Use whole-dollar approved Ohio taxable bases and cent-level ordinary-credit totals. Confirm full-year residency and both state scenarios before enabling the resident estimate. With complete bases but blank credits, the model can show the annual nonbusiness and business tax before credits while leaving final state and combined tax unknown. Municipal tax, school-district tax, nonresident allocation, refundable / recapture credits and other special taxes require separately prepared final liabilities entered consistently in both scenarios. An estimate is not an estimated-payment safe-harbor calculation or a complete Ohio return.
Ohio preparation checklist
- Confirm full-year Ohio residency and prepare annual state gain classification, adjustments, basis and deduction eligibility both without and with the sale.
- Use the enacted 2026 $332 / 2.75% formula and the separate 3% taxable-business base after excess exemption allocation; do not reuse the older rate table printed in the 2026 payment sheet.
- Recompute current Ohio MAGI, both required deduction addbacks, the frozen indexed exemption unit and the strict $500,000 eligibility boundary for each annual scenario.
- Enter the complete approved ordinary nonrefundable-credit total in each scenario after actual income tests and ordering; blank is unknown, not zero.
- Prepare refundable or recapture credits, municipal / school-district tax, other taxes and nonresident allocations through the final-liability mode; confirm the separate federal gain and NIIT inputs.
Current Ohio income definitions and gain deductions · Current exemption eligibility · Enacted HB96 analysis, pages 456–457: rates and index freeze. The resident comparison uses independently approved annual bases and ordinary nonrefundable credits; complete-return effects require prepared final liabilities.