TL;DR: Most Arkansas sellers do not pay capital gains tax when they sell a house, because federal law excludes up to $250,000 of gain for a single seller and $500,000 for married couples filing jointly (IRS Topic 701, updated 12-Oct-2026). Both the ownership test and the use test require 24 months within the last 5 years. That exclusion is a federal rule. Arkansas exempts residence gain up to the same amounts and taxes 50% of any other net capital gain at a 2026 top rate of 3.7%, an effective top rate of about 1.85% (Arkansas DFA; Act 1 of the 2026 First Extraordinary Session).
Do I pay capital gains tax when I sell my house in Arkansas?
Probably not federally, if the house is your main home. IRS Topic 701 (updated 12-Oct-2026) lets you exclude up to $250,000 of gain from the sale of your main home, or up to $500,000 if you file a joint return with your spouse. Arkansas has its own matching exemption: gain on the sale of a personal residence is exempt up to $250,000 per taxpayer, or $500,000 for a married couple filing on the same return (Arkansas DFA, 2025 individual income tax instructions).
The exclusion depends on two tests, both measured in the 5 years before the sale:
- Ownership: you owned the home at least 24 months.
- Use: you lived in it as your main residence at least 24 months.
The two 24-month periods do not have to be the same months. You also generally cannot claim the exclusion if you excluded gain from another home sale within the 2 years before this sale (IRS Topic 701, 12-Oct-2026).
Pull your purchase and sale closing statements and your improvement records, and have your preparer compute your basis and gain.
If you have lived in your Bentonville, Rogers, Fayetteville or Springdale home for at least 24 months of the last 5 years, you start with a federal $250,000 shield, or $500,000 if you and your spouse file jointly. Only gain above that is taxed on your federal return.
What tax applies to gain above the exclusion, federal and Arkansas?
On your federal return, gain above the exclusion is taxed at long-term capital gains rates. For 2026, IRS Revenue Procedure 2025-32 sets the 0% rate on long-term gains up to $49,450 of taxable income for a single filer and $98,900 for married filing jointly, 15% up to $545,500 single and $613,700 joint, and 20% above those levels.
Higher earners may also owe the 3.8% net investment income tax when modified adjusted gross income exceeds $200,000 for a single or head of household filer, or $250,000 MAGI for married filing jointly (IRS Topic 559, 24-Sep-2026). Ask your preparer whether the NIIT applies to any gain above the exclusion.
For Arkansas, H.B. 1001 lowers the top individual income tax rate from 3.9% to 3.7%, retroactive to January 1, 2026 (EY Tax News, June 2026). On a taxable gain, Arkansas taxes 50% of a net capital gain (Arkansas DFA Form AR1000D, 2025), so the 3.7% top rate works out to about 1.85% of the gain (50% x 3.7%).
If your gain fits inside the exclusion, the federal rates above do not apply to it. Whatever part of your gain the Arkansas return taxes, 3.7% is the top state rate on 2026 income.
Would a Benton or Washington County seller actually owe anything?
A home bought at the Benton County average five years ago would show about $154,466 of price appreciation, well under the $250,000 exclusion. The Arvest Skyline Report for the first half of 2026 (reported by Talk Business & Politics, August 2026) puts the Benton County average home price at $465,888, which is 49.6% higher than five years earlier. Removing that 49.6% increase from $465,888 gives $311,422 five years ago, so the price rise is $465,888 - $311,422 = $154,466. Against a $250,000 exclusion, that leaves $250,000 - $154,466 = $95,534 of room for a single seller, and $500,000 - $154,466 = $345,534 for a joint filer.
Washington County's first-half 2026 average is $423,750, which is 42.5% higher than five years earlier. Removing that 42.5% increase from $423,750 gives $297,368 five years ago, so the price rise is $423,750 - $297,368 = $126,382. That is also well under $250,000.
Two cautions. These are county average prices, not medians, and they are not any seller's actual basis. Have your preparer compute your basis from your closing statements and improvement records. If you are a Benton or Washington County owner of five years or so, compare your own figures with these county averages to confirm your actual gain.
What can break the exclusion: rentals, home offices, inherited homes and reporting?
Several situations change the answer. If you rented out a space that is separate from your living area, the gain on that portion generally cannot be excluded and is reported on Form 4797. If the space is inside the home, such as a home office, there is no allocation of gain, but you cannot exclude the part of your gain equal to depreciation allowed after May 6, 1997 (IRS Publication 523, 2025). That portion is unrecaptured section 1250 gain, taxed at a maximum 25% rate (IRS Topic 409), not at ordinary income rates.
For an inherited home, basis is generally the fair market value on the decedent's date of death. A surviving spouse who owned the home jointly gets only the decedent's half revalued (IRS Publication 523, 2025).
On reporting, the settlement agent generally files Form 1099-S. A residence sale at or under $250,000 ($500,000 if the seller is married) need not be reported if you give a written certification that it was a principal residence, the full gain is excludable, and there was no nonqualified use after December 31, 2008 (IRS Instructions for Form 1099-S, opened Oct 2026). If a 1099-S is filed, you report the sale on Form 8949 and Schedule D (IRS Publication 523, 2025).
If you ever rented the house, worked from a dedicated room, or inherited it, tell your preparer before closing, not after.
What should you do with these numbers?
- Check the two tests first: at least 24 months of ownership and 24 months of main-residence use within the last 5 years, and no other home-sale exclusion within the 2 years before closing (IRS Topic 701, 12-Oct-2026).
- Have your preparer compute your basis from your closing statements and improvement records, then compare your gain with the federal exclusion: $250,000 if you file single or $500,000 if you file jointly (IRS Topic 701, 12-Oct-2026).
- If your gain exceeds the exclusion, ask your preparer for a federal and Arkansas estimate, using the 3.7% top Arkansas rate for 2026 on 50% of the gain and the 2026 federal brackets in Rev. Proc. 2025-32.
- If you rented or deducted a home office, ask about depreciation recapture before you list.
- Calendar the Arkansas return deadline: April 15, or about November 15 with an accepted federal extension (Arkansas DFA, opened Oct 2026).
Frequently Asked Questions
Do I pay capital gains tax when I sell my house in Arkansas?
Usually not federal tax on a main home, because up to $250,000 of gain is excludable for a single seller and up to $500,000 for married couples filing jointly (IRS Topic 701, 12-Oct-2026). You must meet the 24-month ownership and use tests within the last 5 years. Arkansas exempts residence gain up to the same $250,000 or $500,000 (Arkansas DFA).
What is the Arkansas income tax rate on a home sale gain?
The top Arkansas individual income tax rate is 3.7% for tax year 2026, down from 3.9% and retroactive to January 1, 2026 (EY Tax News, June 2026). Arkansas taxes 50% of a net capital gain, so the effective top rate on a taxable long-term gain is about 1.85% (Arkansas DFA Form AR1000D, 2025).
Does the 3.8% net investment income tax apply to my home sale?
It can, depending on your income: the 3.8% tax applies when MAGI exceeds $200,000 for a single filer, $250,000 for married filing jointly, or $125,000 for married filing separately (IRS Topic 559, 24-Sep-2026). Ask your preparer whether the NIIT applies to any gain above the exclusion.
When is the Arkansas return due if I sell this year?
The Arkansas individual return is due April 15, or the next business day if that falls on a weekend or holiday (Arkansas DFA, opened Oct 2026). An accepted federal extension moves the Arkansas date to one month after the federal due date, usually November 15. A state-only extension uses Form AR1055, postmarked by April 15.
If you are weighing a sale in Benton or Washington County, call Mason Capital Group at 479-925-3333 and we will prepare a pricing and net-proceeds estimate for your property, with a clear view of how your expected gain compares with the federal $250,000 or $500,000 exclusion before you list.
About the author: Cameron Torabi, Principal Broker — Mason Capital Group. 30+ years of Northwest Arkansas real estate expertise; $2.4B+ in cumulative transaction activity.
Figures in this article are drawn from IRS Topic No. 701 (updated 12-Oct-2026), the IRS long-term capital gains rate page (updated 24-Sep-2026), IRS Topic No. 559 (updated 24-Sep-2026), IRS Publication 523 (2025), IRS Instructions for Form 1099-S (opened Oct 2026), IRS Revenue Procedure 2025-32, IRS Topic No. 409, EY Tax News (June 2026), Act 1 of the 2026 First Extraordinary Session, Arkansas DFA Form AR1000D and 2025 individual income tax instructions, Arkansas DFA Individual Income Tax Deadlines & Extensions (opened Oct 2026), and Talk Business & Politics reporting the Arvest Skyline Report (1H 2026, reported August 2026).