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

[user17707899157]

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?

[user17707899157]

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.

[DianeW777]

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)

TurboTax Online:

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

1. Then select Tools below Tax Tools.
2. A window will pop up which says Tools Center.  
3. On this screen, select Share my file with Agent.
4. You will see a message explaining what the diagnostic copy is.  Click okay through this screen and then you will get a Token number.
5. 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:

If you like, you can send a copy of your return that will be scrubbed to eliminate your personal data by using these steps:

1. Click on Online in the top left menu of TurboTax Desktop for Windows
2. Select 'Send Tax File to Agent'* > Follow the prompts to reach the token number.
   • Enter your email used for TurboTax > Enter your code > Send
3. Write down or send an image of your token number and state then place in this issue.
4. We can then review your exact scenario for a solution.
5. Please also tell us any states included in the return. This is necessary for us to view the return.
   • *If using a MAC, go to the menu at the top of the screen, select Help, then, 'Send Tax File to Agent')

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.

[user17707899157]

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.

[tj-21]

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