Oklahoma Capital Gain Deduction (Form 561)

If you sold qualifying Oklahoma property or business interests and reported a capital gain on your federal return, you may be eligible to claim the Oklahoma Capital Gain Deduction using Form 561. This deduction allows certain Oklahoma capital gains included in your federal adjusted gross income (AGI) to be subtracted on your Oklahoma return.

Qualifying gains may come from the sale of Oklahoma property, Oklahoma business interests, installment sales, or gains passed through from partnerships, S corporations, estates, and trusts.

Important: Not all capital gains qualify for the Oklahoma Capital Gain Deduction. Review the Oklahoma Form 561 instructions carefully to determine whether your property, business interest, or pass-through gain meets Oklahoma's qualification requirements.

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Oklahoma Return > Subtractions from Income > OK Capital Gain Deduction (Form 561)

Before You Begin

Before starting, gather the documents and information needed to determine whether your gain qualifies for the Oklahoma Capital Gain Deduction and to accurately complete Form 561.
 
Have the following documents available:
  • Federal Schedule D
  • Federal Form 4797 (if applicable)
  • Federal Form 6252 for installment sales (if applicable)
  • Schedule K-1 from partnerships, S corporations, estates, or trusts (if applicable)
  • Records showing acquisition date, sale date, sales price, and cost basis
  • Information about the type and location of the property sold 

Step 1: Enter Capital Gain or Loss Transactions

Use this section if you sold qualifying Oklahoma property, stock, or a business interest and the gain or loss was reported on your federal return, typically on Schedule D and Form 8949.

Enter the following information

  • Description of Property 
  • Address of Property
  • Type of Property Sold -Select the option that best matches the property sold:
    • The sale of stock in a qualified Oklahoma corporation
    • The sale of an ownership interest in a qualified Oklahoma company, limited liability company, or partnership
    • The sale of qualified real property located within Oklahoma
    • The sale of qualified tangible personal property located within Oklahoma
    • The sale of qualified intangible personal property located within Oklahoma
    • If more than one type listed above 
  • Qualifying Reason for Sale
    • Net capital gain from sale of business property
    • Net capital gain or (loss) from partnerships, S corporations, estates or trusts
  • Date Acquired
  • Date Sold or Disposed
  • Proceeds (Sales Price)
  • Cost or Other Basis Minus Adjustments to Gain or Loss- Enter your adjusted basis in the property. The program will use this information to calculate the gain or loss. 

Step 2: Enter Installment Sales

Use this section if you reported a qualifying Oklahoma installment sale on Federal Form 6252 and recognized gain during the current tax year.

Enter the following information

  • Qualifying Oklahoma Capital Gain from Installment Sales Reported on Federal Schedule D -Enter the qualifying gain amount reported on Federal Schedule D.
  • Installment Sales - Type of Property Sold
    • The sale of stock in a qualified Oklahoma corporation
    • The sale of an ownership interest in a qualified Oklahoma company, limited liability company, or partnership.
    • The sale of qualified real property located within Oklahoma
    • The sale of qualified tangible personal property located within Oklahoma
    • The sale of qualified intangible personal property located within Oklahoma
    • If more than one type listed above 

Example

A taxpayer sells qualifying Oklahoma real estate and reports the gain on an installment sale using Federal Form 6252. Enter the qualifying gain recognized during the tax year and select The sale of qualified real property located within Oklahoma. 

Step 3: Enter Sale of Business Property

Use this section if you sold qualifying Oklahoma business property and reported the transaction on Federal Form 4797 or Schedule D.

Note: Only gains that meet Oklahoma's qualification requirements should be entered in this section.

Enter the following information

  • Qualifying Oklahoma Net Capital Gain from Sale of Business Property Reported on Federal Schedule D
  • Sale of Business Property - Type of Property Sold
    • The sale of stock in a qualified Oklahoma corporation
    • The sale of an ownership interest in a qualified Oklahoma company, limited liability company, or partnership
    • The sale of qualified real property located within Oklahoma
    • The sale of qualified tangible personal property located within Oklahoma
    • The sale of qualified intangible personal property located within Oklahoma
    • If more than one type listed above 

Example

A taxpayer sells qualified Oklahoma business real estate and reports the transaction on Federal Form 4797. Enter the qualifying gain and select the corresponding property type. 

Step 4: Enter Other Capital Gain

Use this section if you have a qualifying Oklahoma capital gain reported on Schedule D that does not belong in the Installment Sales, Sale of Business Property, or K-1 sections.

Important: Use this section only if the qualifying gain does not belong in any of the other categories. Do not enter the same gain in more than one section.

Enter the following information

  • Other Qualifying Oklahoma Net Capital Gain or (Loss) Reported on Federal Schedule D
  • Other Capital Gain - Type of Property Sold
    • The sale of stock in a qualified Oklahoma corporation
    • The sale of an ownership interest in a qualified Oklahoma company, limited liability company, or partnership
    • The sale of qualified real property located within Oklahoma
    • The sale of qualified tangible personal property located within Oklahoma
    • The sale of qualified intangible personal property located within Oklahoma
    • If more than one type listed above 

Step 5: Enter Partnerships, S Corporations, Estates, or Trusts

Use this section if you received a qualifying Oklahoma capital gain or loss from a Schedule K-1 issued by a partnership, S corporation, estate, or trust.

Examples include gains reported on:

  • Schedule K-1 (Form 1065)
  • Schedule K-1 (Form 1120-S)
  • Estate or Trust Schedule K-1 

Enter the following information

  • Qualifying Oklahoma Net Capital Gain or (Loss) from Partnerships, S Corporations, Estates or Trusts Reported on Federal Schedule D - Enter the amount reported on your federal return.
  • Partnerships, S Corporations, Estates or Trusts - Type of Property Sold
    • The sale of stock in a qualified Oklahoma corporation
    • The sale of an ownership interest in a qualified Oklahoma company, limited liability company, or partnership
    • The sale of qualified real property located within Oklahoma
    • The sale of qualified tangible personal property located within Oklahoma
    • The sale of qualified intangible personal property located within Oklahoma
    • If more than one type listed above 

Example

A partnership sells qualified Oklahoma real property and reports the gain to partners on Schedule K-1. If the gain qualifies for the Oklahoma Capital Gain Deduction, enter the gain amount and select The sale of qualified real property located within Oklahoma. 

Qualifying Oklahoma Capital Loss Carryover Reported on Federal Schedule D

If you have a qualifying Oklahoma capital loss carryover reported on Federal Schedule D, enter the carryover amount. This amount will be used when calculating your allowable Oklahoma Capital Gain Deduction.

Net Capital Gain Worksheet

The Oklahoma Net Capital Gain Worksheet helps determine the portion of your federal net capital gain that qualifies for the Oklahoma Capital Gain Deduction. Because Oklahoma generally allows only qualifying Oklahoma gains to be included, capital gains and losses from nonqualifying out-of-state property may need to be removed from the calculation.

Use this section only if your Federal Schedule D includes gains or losses from property located outside Oklahoma that must be excluded when calculating the Oklahoma Capital Gain Deduction. Most taxpayers can leave this section blank

You may need to enter:

  • Out-of-State Net Short-Term Capital Losses (Losses from property located outside Oklahoma that you owned for one year or less before selling.)
  • Out-of-State Net Short-Term Capital Gains (Gains from property located outside Oklahoma that you owned for one year or less before selling.)
  • Out-of-State Net Long-Term Capital Losses (Losses from property located outside Oklahoma that you owned for more than one year before selling.)
  • Out-of-State Net Long-Term Capital Gains (Gains from property located outside Oklahoma that you owned for more than one year before selling.)

These amounts help determine the portion of net capital gain that qualifies for Oklahoma's deduction. 

Tip: If all of your capital gain transactions involve qualifying Oklahoma property and you do not have out-of-state gains or losses, you can generally leave this section blank.
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