By Justin Quen, CPA, Tax Editor
Market dips don’t have to mean defeat. Watching your portfolio fluctuate can feel unsettling—but with the right tax strategies, volatility can become a hidden advantage. Especially for Arizona residents, understanding how capital gains and losses work can be the key to smarter investing.
Capital Gains in Arizona: What You Keep Depends on What You Know
When you sell an asset like a stock, bond, or property for a profit, that gain is taxable. Federally, the rate depends on how long you’ve held the asset. In Arizona, capital gains are treated as ordinary income and taxed at a flat 2.5% state income tax rate.
But Arizona gives long-term investors a leg up:
If you purchased the asset after 2011 and held it for more than one year, you can deduct 25% of the gain from your Arizona taxable income.
This unique deduction, combined with lower federal rates on long-term gains, helps you retain more of your earnings—a crucial benefit in volatile markets where timing your sales can make a big difference.
Turn Losses Into Wins: How Tax-Loss Harvesting Works
Tax-loss harvesting is a strategy where you sell investments that have dropped in value to realize a loss—which can then be used to lower your tax bill.
Here’s how those losses can work for you:
- Offset current-year capital gains (reducing tax liability)
- Offset up to $3,000 of regular income annually
- Carry forward unused losses to future tax years
Real-Life Scenario:
Imagine you’re planning to sell a home in Phoenix that’s doubled in value. That’s a significant taxable gain. But let’s say your stock portfolio took a hit this year. Selling some of those underperforming stocks could create realized losses to offset the taxable real estate gain.
In unpredictable years, this kind of strategic loss harvesting can cushion the tax blow and put you in a stronger position going forward.
Why These Strategies Matter to Arizonans
Whether you’re a retiree in Scottsdale, a software engineer in Tempe, or a business owner in Tucson, Arizona’s tax code offers a unique edge:
- 25% deduction on long-term capital gains (for qualifying assets)
- Flat tax structure simplifies planning
- Ability to combine real estate gains and investment losses for optimal timing
These tools empower Arizona investors to manage taxes more proactively and preserve more of their wealth in turbulent times.
Final Thoughts: Don’t Let Volatility Dictate Your Strategy
Market swings are part of the natural cycle. The difference lies in how you respond. Rather than reacting emotionally, Arizona investors can lean into smart tax planning to make volatility work in their favor.
Collaborating with a trusted CPA or financial advisor who understands both federal and Arizona-specific tax laws can help you navigate your options with confidence.
About the Author
Justin Quen is a Scottsdale native, licensed CPA, and graduate of the University of Arizona, where he earned his Master’s degree in Accounting. As the founder of his own accounting and tax practice, Justin works closely with individuals and small business owners, offering personalized services tailored to each client’s needs. His mission is to make expert financial advice more accessible to the Arizona community.
If you have any questions about tax planning, capital gains, or strategies like tax-loss harvesting, Justin is happy to help. You can reach him at justin@jqcpa.net.
