Assigned to FIN FOR COMMITTEE
ARIZONA STATE SENATE
Fifty-Seventh Legislature, First Regular Session
REVISED
FACT SHEET FOR S.B. 1331
income tax subtraction; capital gains
Purpose
Applies, to taxable years beginning January 1, 2026, the 25 percent individual income tax
subtraction for net long-term capital gains included in federal adjusted gross income to all assets,
rather than only assets acquired beginning January 1, 2012.
Background
A capital gain is acquired when an individual sells an asset for more than it cost. Capital
gains are classified as long-term or short-term gains. A long-term capital gain applies to assets that
an individual holds for at least one year before they dispose of it. A short-term capital gain applies
to assets that are held for one year or less (IRS).
Individual income tax is levied on Arizona residents’ taxable income. The tax base begins
with Arizona gross income, which is equivalent to the taxpayer's federal adjusted gross income.
Statute authorizes various amounts, such as net-long term capital gain, to be added or subtracted
when computing an individual's Arizona adjusted gross income, which is further reduced by
standard or itemized deductions to arrive at Arizona taxable income. For taxable years beginning
January 1, 2015, statute allows a 25 percent individual income tax subtraction of net long-term
capital gains included in federal adjusted gross income that is derived from an asset acquired after
January 1, 2012 (A.R.S. § 43-1022).
The Joint Legislative Budget Committee (JLBC) anticipates that S.B. 1331 would result in
a state General Fund revenue reduction of between $40 million and $60 million beginning in FY
2027. Due to data constraints, JLBC cannot determine the fiscal impact with precision (JLBC fiscal
note).
Provisions
1. Expands, beginning taxable year January 1, 2026, the 25 percent individual income tax
subtraction for net long-term capital gains included in federal adjusted gross income by
applying the subtraction to all assets, rather than only assets acquired beginning January 1,
2012.
2. Makes technical and conforming changes.
3. Becomes effective on the general effective date. FACT SHEET – Revised
S.B. 1331
Page 2
Revisions
• Updates the fiscal impact statement.
Prepared by Senate Research
February 20, 2025
AL/MG/ci