topic New Mexico long term capital gains deductions changed for 2025 but turbotax still using old rule in State tax filing

New Mexico long term capital gains deductions changed for 2025 but turbotax still using old rule

user17707899157 — Wed, 11 Feb 2026 06:18:17 GMT

i am inputting data for my NM state tax return i have a suspiciously large refund. i have a large LTCG for 2025. in previous years we had a 40% deduction on ltcg before it was added to the rest of income to calculate your tax liability.

i found out in January that there was a change and the max for non NM based businesses was capped at $2500. i had to scramble and give additional monies at the 4th quarter estimated tax deadline for NM. I had emailed New Mexico Taxation and Revenue dept to clarify and below is their reply.

"Yes, the change to the law was passed during the 2024 session and is effective starting with the 2025 tax year. You can see the statute below.

7-2-34. DEDUCTION--NET CAPITAL GAIN INCOME.--

A. A taxpayer may claim a deduction from net income in an amount

equal to the greater of:

(1) the taxpayer's net capital gain income for the taxable year

for which the deduction is being claimed, but not to exceed two thousand five

hundred dollars ($2,500); or

(2) forty percent of up to one million dollars ($1,000,000) of the

taxpayer's net capital gain income from the sale of a business that is allocated

or apportioned to New Mexico pursuant to Section 7-2-11 NMSA 1978 for

the taxable year for which the deduction is being claimed.

B. Married individuals who file separate returns for a taxable year in

which they could have filed a joint return may each claim only one-half of the

deduction provided by this section that would have been allowed on the joint

return.

C. As used in this section, "net capital gain" means "net capital gain"

as defined in Section 1222 (11) of the Internal Revenue Code.

(Laws 2024, Chapter 67, Section 8; Applicable to taxable years beginning on

or after January 1, 2025)

Thank you for your inquiry,"

Turbo tax is still giving a 40% deduction to my ltcg when inputting the data. which is why i am getting a large refund that is almost exactly what i had to scramble to add on to my 4th quarter estimated tax. how is this corrected?

Re: New Mexico long term capital gains deductions changed for 2025 but turbotax still using old rule

user17707899157 — Fri, 13 Feb 2026 21:34:20 GMT

no replies so here's what i did. the tax expert advise was not aware of any pending NM state updates. i double checked the instructions for NM PIT-adj and it was as i described. the tax expert was walking me through the state tax forms we saw the large deduction that was the 40% from previous yrs even for non NM based businesses. we deleted it and replaced it with the max allowed $2500 since my ltcgs was a larger amount.

Turbo Tax should fix this otherwise filers with large ltcgs will get a big surprise and a large penalty.

Re: New Mexico long term capital gains deductions changed for 2025 but turbotax still using old rule

DianeW777 — Mon, 16 Feb 2026 22:21:08 GMT

As you indicated the key changes are as shown below.

Key Changes and Details (As of 2025/2026): PIT Instructions (PIT 1-10)

Deduction Limit: The general capital gains deduction is limited to $2,500 per taxpayer.
Business Sale Exception: A special deduction of 40% of capital gains is allowed, up to a maximum of $1 million in gain, for the sale of a New Mexico business.
Tax Rates: Capital gains are taxed as ordinary income at progressive rates, ranging from 1.5% to 5.9%.
Impact: These changes, effective from the 2025 tax year, apply to both short-term and long-term gains, reducing the previous preferential treatment.

If you would like to send us a “diagnostic” file that has your “numbers” but not your personal information it would help.  If you would like to do this, here are the instructions: (Don't forget to give us the state)

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Open your return -Go to the menu panel on the left side of your return and select Tax Tools.

Then select Tools below Tax Tools.
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Reply to this thread with your Token number and your state. This will allow us to open a copy of your return without seeing any personal information.

TurboTax Desktop:

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We will be able to see exactly what you are seeing and we can determine what exactly is going on in your return to provide you with a resolution.

Re: New Mexico long term capital gains deductions changed for 2025 but turbotax still using old rule

user17707899157 — Tue, 17 Feb 2026 02:12:05 GMT

i overrode the figure with the erroneous deduction and put in 2500 which is max allowed. went through checks several times and turbotax keeps wanting me to put the wrong large deduction. i already filed my federal and paid to efile the state but when i was efiling it wouldn't allow me to do it ( after i paid the fee) because of the override. so i printed the state return to planning to mail it in. when i was figuring out where to mail it, our state taxpayer access portal recommneded efiling directly on their site. i put in the numbers on the online NM PIT form and completed my return that way. btw, i am still awaiting confirmation that my state efiling fee will be refunded.

prior to giving up on turbotax for the NM state return i called turbotax support and the last guys advice was just to "consult a tax professional". huh? i was asking about them fixing the deduction as well as an error in a line 38 of the form which should equal the total of lines 33, 34 and 36 i think. i changed it to the right total but the program didn't like being overridden. like the other 2 people i asked for help he wasn't aware of any pending update to the NM return. software.

please correct this issue on the software.

Re: New Mexico long term capital gains deductions changed for 2025 but turbotax still using old rule

tj-21 — Fri, 06 Mar 2026 18:07:53 GMT

Thanks for all the info and updates.

Does selling of a rental property on installment qualify for the $2500 cap gain deduction or the 40% of the business capital gain deduction? On our Pit B the capital gain is listed under Line 5 (Gains or losses from the sale or exchange of property).

Thanks

Re: New Mexico long term capital gains deductions changed for 2025 but turbotax still using old rule

lmg29 — Thu, 12 Mar 2026 22:45:30 GMT

I originally filed in February and Turbo tax put in the incorrect deduction for the capital gains on line 15. I received a letter from NM Taxation saying I owed them more , plus a fine. So today (3/12/26) I did the correction recommended on this site and refiled. It did correct the line 15 and put in the new amount of 2500.

Re: New Mexico long term capital gains deductions changed for 2025 but turbotax still using old rule

tj-21 — Sat, 14 Mar 2026 17:39:33 GMT

If you could add some additional info it would be helpful. What type of capital gains did you have? My question before yours was a rental property installment sale. I'm trying to figure out how to choose which capital gains method to deduct the $2500 or 40%.

Any info would help, Thanks

Re: New Mexico long term capital gains deductions changed for 2025 but turbotax still using old rule

tj-21 — Sat, 14 Mar 2026 17:45:03 GMT

User [phone number removed]

What type of capital gains deduction are you doing? I have a rental property installment sale and trying to figure out which one to choose. Do you or anyone else have some info to help me out? My post was right after yours.

Thank you

Re: New Mexico long term capital gains deductions changed for 2025 but turbotax still using old rule

tj-21 — Sat, 14 Mar 2026 17:46:36 GMT

Thank you

Re: New Mexico long term capital gains deductions changed for 2025 but turbotax still using old rule

user17707899157 — Sun, 15 Mar 2026 18:43:05 GMT

my capital gains was from selling stock. i was correct about the 2500 max i could take but had a small penalty offsetting a small refund. understandable since i was making my quarterly estimated payments based on the old 40% deduction being applicable to all ltcgs. i paid the additional adjusted amount on 1/15/26( though the ltcgs were realized months before) so they dinged me for it. i paid $59. i am not qualifed to tell you if your rental property is considered a NM business but if it were then 40% deduction up to a million is applicable. how your installment plan factors into it is unclear. 40% deducted from the payment per year moving forward? i have no idea.

Re: New Mexico long term capital gains deductions changed for 2025 but turbotax still using old rule

biggap — Thu, 26 Mar 2026 19:04:22 GMT

Short answer: Yes, TurboTax managed to fix this, some time between your entry and March 6th.

As usual, I was blithely updating my Fed and NM returns until the rate of TurboTax (TT) updates slowed down. Got the Federal filed on March 6th, but I don't use it for NM (keep reading!). My NM return in TT had showed a small refund. A mid Feb TT update erased all the NM data I had entered, but once I re-entered it, still showed the same refund. The next TT update (before I filed the Federal) changed my refund to almost the same amount owed. Looked fishy, not to mention annoying. I finally tracked some of it down to yes, the net capital gains deduction, as well as interest received on US Government obligations (both items are due to our holdings in our retirement accounts). When I went thru the NM Taxpayer Access Portal, I ended up with the same amount due as TT's last effort, but some of the deductions don't match. Sigh. Still thrashing. We don't even live in the state anymore! but still have consulting income in NM, so we have to file the allocation and apportionment form.

BTW, I haven't used TT to file our NM state taxes for many years, probably since NM started pushing their online system. TT almost always ends up with a different number, plus or minus from $1 to $20. Once TT didn't know about a mid-year rebate, and I had to override and manually enter it; the next year, TT almost wouldn't let me continue because I WASN'T claiming the previous year's rebate. One year NM re-calculated for us and fixed a TT error, resulting in a few bucks more in our refund. That may have been the last time I filed under TT!

I always run thru it in TT anyway, as a first estimate, but I only file thru the NM portal. It's free, and I have come to trust it more than TT for NM.

Re: New Mexico long term capital gains deductions changed for 2025 but turbotax still using old rule

biggap — Thu, 26 Mar 2026 19:20:34 GMT

I came to this thread because I did an internet search for "When did NM change the capital gains adjustment". Of the results, I chose this thread 🙂 as well as an article for a tax reports publication, which explained the detail that I needed. The article includes discussion of which types of capital gains were affected by the 2024 legislative change, and which were not. I am not about to tell tj21 what category your sale is in, and that article may not apply to your situation anyway; I suggest you do an internet search on a question more directly related to your issue. You'll probably get a link to this thread! but hopefully, to relevant tax publications as well.