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Thanks for the info lorenzo2. To answer your question, I am a resident of Maryland.

Well then, for once I can speak somewhat authoritatively, since I too reside in Maryland, and I've filed my share of Maryland returns over the years.

Maryland AGI is simply federal AGI with a few obvious adjustments. In particular, a large capital gain on your federal return will get carried right into your Maryland AGI, and thence to your Maryland taxable income. So if you have a fat capital gain, you're gonna pay more taxes, both federal and Maryland, no doubt about it!

If capital gains are included in AGI, then is it true that capital gains are taxed at the same rate as ordinary income at the state level?

Yep. No special treatment for capital gains. Taxed like ordinary income.

Does having a large capital gain push ordinary income into higher tax brackets?

Maryland doesn't really have brackets. (Well, ok, they have two, but the first bracket ends at $3K of taxable income. Everything above $3K is one big bracket, so pretty much everyone falls into that one...) Marginal rate is 5% and local tax is half of that or less, depending on your county. In short, you won't be much wrong if you figure that Maryland has a single bracket of 7.5%. So no, you won't be pushed into a higher bracket, because you're almost certainly already there!

I can also speak to penalties, figured on form 502UP. The penalty for 2000 amounted to about 13% of the underpayment, but it's done on a quarterly basis; the earlier you find yourself behind, the worse the penalty. A large cap gain taken in December won't hurt too much. One taken in Feb or March would lead to some pain. (But not that much. A cap gain of $100K would lead to an additional tax of a little less than $7500. The penalty on that would be a little over $900, if it was for the full year, but only about $240 if it was in the last quarter. Not a whole lot when compared to $100K!) Figuring the penalty is somewhat of a hassle, but is relatively straightforward.

Good luck. Remember, capital gains are good!
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