Direct Indexing in Wisconsin: The 30% Long-Term Exclusion That Changes the Math

Wisconsin's top income tax rate of 7.65% looks similar to Minnesota's 9.85% or Oregon's 9.9% — but a critical difference applies to long-term capital gains. Wisconsin allows a 30% exclusion on net LTCG, meaning only 70% of long-term gains enter state taxable income. The result: an effective Wisconsin LTCG rate of 5.355% and a combined federal + state rate of approximately 29.2% for top-bracket investors. That's meaningfully higher than Texas or Florida (23.8%), but notably lower than Minnesota (33.65%), Oregon (33.7%), and California (37.1%). For Fiserv, Rockwell Automation, Johnson Controls, and Kohl's RSU holders in the Milwaukee metro — and for Epic Systems and Exact Sciences employees in Madison — the 29.2% combined rate makes direct indexing clearly worthwhile at $500K+ in taxable assets.

Wisconsin's 7.65% top rate and the 30% long-term capital gains exclusion

Wisconsin has four progressive income tax brackets for 2026: 3.54%, 4.65%, 5.3%, and 7.65%. The top 7.65% rate applies to Wisconsin taxable income above approximately $443,000 for married filing jointly — a threshold reached by most HNW investors with meaningful RSU income or capital gain events.¹

Unlike many states, Wisconsin does not simply tax all capital gains as ordinary income at its top rate. Under Wis. Stat. § 71.05(6)(b)9., Wisconsin allows a deduction equal to 30% of net long-term capital gains on assets held more than one year. The remaining 70% is included in Wisconsin taxable income and taxed at the applicable ordinary income bracket.²

For a top-bracket Wisconsin investor, the combined federal + state rate on long-term capital gains stacks as follows:

Short-term capital gains receive no Wisconsin exclusion and are taxed at full ordinary income rates — up to 7.65% state. Combined with the top federal ordinary rate (37%) and the 3.8% NIIT on net investment income above the $250K/$200K threshold, short-term gains can face a combined rate approaching 47–48% for top-bracket Wisconsin investors. This asymmetry is strategically important for direct indexing. See the RSU guide for how short-term loss harvesting interacts with equity compensation income.

Break-even table: Wisconsin 29.2% vs. Texas/Florida 23.8%

Estimated annual net benefit of direct indexing at Wisconsin's top combined rate vs. investors in no-income-tax states. Assumes 1.5% annual harvest rate and a 0.25% fee premium over a comparable low-cost ETF. Actual harvest rates vary significantly with market conditions and portfolio composition.

For 15%-bracket Wisconsin investors with income below the 20% federal LTCG threshold: at $1M taxable the net benefit narrows to roughly +$307/year (15% federal + ~3.7% effective WI = 18.7% combined; $15K harvest × 18.7% = $2,805, minus $2,500 fee = +$305). The case for DI strengthens considerably at $1M+ in the 15% bracket if the investor also has RSU income, K-1 events, or concentrated stock — because those income events are taxed at full rates without the 30% WI exclusion.

See the full direct indexing break-even framework for the expanded analysis across all brackets and portfolio sizes.

Milwaukee: Fiserv, Johnson Controls, Kohl's, Harley-Davidson, and Rockwell Automation

The Greater Milwaukee metro is home to a cluster of Fortune 500 corporations whose equity compensation programs make it one of the most significant RSU planning hubs in the Midwest.

• Fiserv (FI). Brookfield-based Fiserv is one of the world's largest financial technology companies ($22B+ revenue, Fortune 100 ranking) and a consistent RSU issuer across its engineering, product, and senior management ranks. The First Data merger in 2019 created a complex equity comp landscape — employees from both legacy Fiserv and legacy First Data hold grants at different cost bases that can span nearly a decade of price history. For Fiserv employees with large embedded gains in pre-merger RSU lots: a direct-indexed S&P 500 account with an FI-exclusion screen builds the loss bank that enables tax-efficient staged sales of concentrated FI stock. See the concentrated stock guide for the mechanics.
• Johnson Controls (JCI). Johnson Controls — building technology, HVAC, fire and security systems — has its principal North American executive hub in Milwaukee. JCI's global transformation strategy (divesting legacy businesses, sharpening the smart building focus) has created significant equity volatility over multi-year periods, generating both large embedded losses and gains for senior employees depending on their grant vintage. A direct-indexed account alongside JCI RSU positions coordinates employer-stock exclusion screening with the ongoing gain/loss harvesting from a diversified portfolio.
• Kohl's (KSS). Kohl's, headquartered in Menomonee Falls, issues RSU grants across its corporate, supply chain, and technology functions. Kohl's has experienced meaningful stock price volatility as the company has navigated the retail disruption environment — employees who received grants at various price points hold positions with highly varied embedded gain/loss positions. Senior Kohl's employees planning concentrated stock exits benefit from a DI loss bank that coordinates with their grant vesting calendar.
• Harley-Davidson (HOG). The iconic Milwaukee-based motorcycle manufacturer issues RSU and performance share grants to corporate and management employees. Harley's stock price history includes significant drawdowns and recoveries tied to tariff environments, demographic shifts, and EV strategy pivots — creating recurring opportunities for both embedded loss harvesting on underwater HOG grants and loss bank deployment against concentrated-position exits. A HOG-exclusion screen in a direct-indexed S&P 500 account prevents wash-sale contamination when harvesting correlated losses from consumer discretionary sector holdings.
• Rockwell Automation (ROK). Rockwell Automation — industrial automation and information software — is headquartered in Milwaukee and employs thousands of engineers and senior executives with annual RSU and stock appreciation rights (SAR) grants. Industrial automation equity comp has benefited significantly from the manufacturing reshoring and factory automation investment cycle; Rockwell employees with multi-year tenures often hold large embedded gains. The DI role: build a loss bank alongside concentrated ROK positions, then deploy losses as the employee executes a disciplined exit from the concentrated employer-stock position over 3–5 years.
• ManpowerGroup (MAN). ManpowerGroup, the global staffing firm headquartered in downtown Milwaukee, issues RSU grants to senior management. Staffing sector equity is highly cyclical — it has experienced large drawdowns in economic slowdowns and significant recoveries in tight labor markets. ManpowerGroup's cyclicality creates natural windows for loss-harvesting in DI alongside MAN position management.

Madison: Epic Systems, Exact Sciences, and the UW research ecosystem

Wisconsin's capital city is home to two of the state's most important employers for equity-adjacent compensation planning, along with the University of Wisconsin system and a growing startup community centered on the research triangle between UW-Madison, the Wisconsin Alumni Research Foundation (WARF), and the American Family Insurance Innovation Center.

• Epic Systems. Epic is the dominant electronic health records company in the United States and employs over 12,000 people at its sprawling Verona campus west of Madison — one of the largest private employers in Wisconsin. Epic is a private company owned by founder Judy Faulkner and does not issue publicly traded stock or traditional RSUs. However, Epic's compensation includes substantial profit-sharing and bonus programs that create large income events for senior employees (including physicians embedded at Epic-client health systems). These high-income years — with income taxed at full 7.65% WI ordinary rates, not the 30%-exclusion LTCG rate — are exactly when a direct-indexed loss bank provides the most incremental value per dollar: short-term losses can offset the income at ~48% combined, and long-term losses can offset future capital gains at 29.2% combined. Epic employees building wealth through high compensation and taxable investment accounts, rather than company equity, are a natural direct indexing audience in the Madison market.
• Exact Sciences (EXAS). Exact Sciences — the cancer diagnostics company best known for the Cologuard colon cancer test — is headquartered in Madison and trades on NASDAQ. Exact Sciences is a significant RSU issuer across its scientific, clinical, and commercial employee base. EXAS stock has experienced dramatic volatility: it ran from single-digit prices to over $150 during the COVID-era diagnostics boom, then retraced substantially. Employees who received RSU grants at peak prices may hold positions with large embedded losses — which, when managed alongside a direct-indexed taxable account, can be harvested tax-efficiently. Employees with older, lower-cost-basis RSU lots have the opposite problem: large embedded gains that benefit from a DI loss bank coordinated with a planned exit strategy.
• Generac Holdings (GNRC). Waukesha-based Generac — residential and commercial generators, home energy storage — experienced one of the most dramatic COVID-era stock stories in the Midwest: shares rose from ~$60 in 2019 to over $500 in late 2021 on generator demand surges, then fell back to the $80–$120 range by 2023. Senior Generac employees who received RSU grants in 2020–2021 may hold positions with large embedded losses — useful raw material for a direct indexing loss bank if managed in a coordinated portfolio. GNRC's volatility also means employees need an employer-stock exclusion screen in their DI account to avoid wash-sale contamination when harvesting losses from correlated industrials/energy-storage sector holdings.

The short-term gain asymmetry: why Wisconsin's 30% exclusion changes DI strategy

Wisconsin's 30% LTCG exclusion creates a tax rate asymmetry that affects how a Wisconsin investor should think about direct indexing strategy. The exclusion applies only to long-term capital gains — not to short-term gains or ordinary income.

This means two different rates are in play for Wisconsin DI investors:

• Offsetting long-term capital gains: 29.2% combined (20% federal LTCG + 3.8% NIIT + 5.355% effective WI). Each dollar of DI loss harvested to offset a long-term gain saves $0.292 in combined taxes.
• Offsetting short-term gains or ordinary income: Up to 47.5% combined (37% federal ordinary + 3.8% NIIT + 7.65% WI at full rate, no exclusion). Each dollar of DI loss harvested to offset a short-term gain saves $0.47 in combined taxes.

In practice, DI harvests losses in both short-term and long-term holding periods as stocks fall below cost basis throughout the year. The platform then applies those losses against the investor's gains by character (short-term losses offset short-term gains first, then long-term gains, then $3K/year of ordinary income at the federal level under §1211(b)).

For Wisconsin investors with RSU income: RSU vesting creates ordinary income at vest (taxed at full WI rates up to 7.65%, no exclusion). The §1211(b) $3K/year federal ordinary income offset from excess capital losses is a small but real benefit. More importantly, RSU lot sales after the holding period becomes long-term generate LTCG that a coordinated DI loss bank can offset at the 29.2% combined rate — each $100K of LTCG from RSU lot sales means $29,200 in combined taxes saved vs. an uncoordinated portfolio.

Investors who also hold K-1 partnership income — PE, real estate, or hedge fund LPs — see the greatest marginal DI value in Wisconsin, because §1231 gains (most real estate and business-sale gains after the 5-year lookback) and LTCG from partnership distributions are subject to the 29.2% combined rate. See the K-1 investor guide for the character-by-character analysis.

Wisconsin QSBS: full §1202 conformity, including OBBBA

Wisconsin now provides some of the most favorable QSBS treatment of any state in the country for founders and early-stage investors. In October 2023, Governor Tony Evers signed Assembly Bill 406, updating Wisconsin's conformity to fully match the federal §1202 QSBS exclusion retroactive to January 1, 2019.³ Before AB 406, Wisconsin only honored 50% of the §1202 exclusion — meaning founders paid WI state tax on the non-excluded half of qualifying QSBS gains.

With AB 406 in effect and Wisconsin subsequently updating its conformity to incorporate OBBBA (signed July 2025), Wisconsin picks up the enhanced federal §1202 rules:

• $15M per-issuer cap (up from $10M under prior law)
• Tiered exclusion: 50% at 3 years, 75% at 4 years, 100% at 5 years
• $75M gross assets threshold at time of original stock issuance

For a Wisconsin founder selling qualifying QSBS stock held five years or more, the entire federal gain exclusion (up to $15M per issuer) is also excluded from Wisconsin state income — making Wisconsin one of the most favorable states for QSBS founders, in stark contrast to California (which does not conform to §1202 and taxes the full QSBS gain at 13.3%) or Pennsylvania (also non-conforming).

For Wisconsin founders with post-exit proceeds not covered by §1202 (excess above the $15M cap, or non-QSBS proceeds), direct indexing the taxable portion at 29.2% combined is a standard strategy. See the business founder guide for the full post-exit DI deployment playbook.

Wisconsin founders with significant QSBS positions should confirm current §1202 Wisconsin conformity with a WI-licensed CPA for their specific tax year and issuer — OBBBA made wide-ranging IRC changes and state-level treatment of specific provisions can vary.

No Wisconsin estate tax: the §1014 step-up plays cleanly

Wisconsin abolished its state estate tax for deaths occurring on or after January 1, 2008.⁴ There is no Wisconsin state estate tax, no Wisconsin inheritance tax, and no Wisconsin gift tax. The federal estate tax exemption of $15 million per person (permanently raised by OBBBA in 2025) with full spousal portability applies — for a married Wisconsin couple, the combined federal exemption is $30 million.

The absence of a state estate tax simplifies the DI step-up strategy:

• Harvest losses from underwater DI positions throughout life — deploy against RSU lot sales, concentrated Fiserv or Rockwell positions, K-1 events, and LTCG from reinvested proceeds
• Let DI winners run unrealized — no annual tax drag, compounding without realization
• At death, all unrealized appreciation in the DI account resets to fair market value under IRC §1014 — decades of embedded gain permanently eliminated with zero Wisconsin state tax consequence
• No Wisconsin estate tax threshold to manage around (unlike Massachusetts at $2M, Maryland at $5M, or Minnesota at $3M)

For large Wisconsin estates with significant embedded appreciation in a direct-indexed SMA, the §1014 step-up strategy — harvest losses in life at 29.2%, step up gains at death — is a particularly clean execution because there's no WI state estate tax complicating the calculation. See the DI and estate planning guide for the full §1014 + DAF gifting + charitable gifting framework.

Minnesota, Illinois, and California transplants to Wisconsin

Wisconsin has seen net in-migration from neighboring Illinois (particularly Chicago-area residents relocating to Milwaukee or Lake Geneva) and from distant high-tax states like California, drawn by lower housing costs, quality of life, and proximity to Madison's research and technology ecosystem.

• From Minnesota (33.65% → 29.2%). A Minnesota-to-Wisconsin domicile change saves 4.45 percentage points on capital gains — on a $2M gain event, roughly $89,000 in state tax savings. Minnesota also has a state estate tax with a $3M exemption (vs. Wisconsin's none), so the elimination of estate tax exposure is an additional planning benefit. Wisconsin requires genuine domicile establishment (driver's license, voter registration, principal residence) before gain recognition — Minnesota audits high-income domicile changes similarly to California.
• From Illinois (28.75% → 29.2%). Wisconsin's 29.2% combined rate is marginally higher than Illinois' 28.75% combined rate (4.95% flat IL income tax vs. 5.355% effective WI LTCG rate). Illinois-to-Wisconsin moves don't generate capital gains rate savings — the driver is typically estate planning (Illinois has a $4M non-portable estate tax exemption) or income tax differences for wage income (Illinois flat 4.95% vs. Wisconsin's progressive brackets up to 7.65%). Illinois residents planning Wisconsin relocation should model both the income and estate tax picture with a cross-state CPA.
• From California (37.1% → 29.2%). A California-to-Wisconsin domicile change saves 7.9 percentage points on capital gains — on a $3M gain event, roughly $237,000 in state tax savings. California's Franchise Tax Board scrutinizes high-income domicile changes aggressively. Wisconsin domicile must be genuinely established before gain recognition; starting DI in California before the move captures carryforward losses at 37.1% that carry forward and offset Wisconsin gains at 29.2% after relocation — still providing substantial value.

Platform selection for Wisconsin investors

All major direct indexing platforms serve Wisconsin investors through their advisor networks. Key considerations by asset level:

• Parametric Portfolio Associates (~$250K minimum, advisor-only): primary platform for Milwaukee-area Fortune 500 RSU holders with multi-account wash-sale complexity — Fiserv, Rockwell, Johnson Controls, Kohl's equity comp coordination. True cross-account wash-sale monitoring and advisor-coordinated rebalancing. All-in cost typically 1.0–1.35%. See the Parametric review.
• Goldman Sachs TACS (~$250K minimum, ~0.20% platform fee): strong option for UHNW Wisconsin investors with $2M+ taxable, particularly for those with concentrated positions and complex carryforward situations. Unique ETF Look-Through feature (May 2025) manages existing ETF positions holistically alongside the DI account. See the Goldman Sachs DI review.
• Vanguard Personalized Indexing (VPI) (~$250K minimum, 0.20% platform fee): cost-efficient advisor-tier option for Wisconsin investors in the $250K–$2M range who prioritize lower platform fees. See the VPI review.
• BlackRock Aperio ($1M+ minimum, advisor-only): relevant for Milwaukee investors wanting deep ESG screens — sector exclusions, revenue-based screening, or factor tilts beyond standard index replication. See the Aperio review.
• JPMorgan TACS (~$250K minimum, ~0.23% under $1M): viable for Wisconsin investors with existing JPMorgan or Chase Private Client relationships. See the JPMorgan DI review.
• Schwab Personalized Indexing ($100K minimum, 0.40% fee): accessible self-serve entry for Wisconsin investors in the top federal bracket with $250K–$1M in taxable and simple tax situations. At 29.2% combined, the net benefit is clearly positive at $500K+. See the Schwab SPI review.
• Wealthfront ($100K minimum, 0.25% all-in): cost-competitive self-serve option for Wisconsin investors without multi-account complexity. At 29.2% combined, Wealthfront's lower fee tier makes the break-even clearer than Schwab at similar asset levels. See the Wealthfront DI review.
• Frec ($20K minimum, 0.09% fee): best low-cost option for Wisconsin investors at $100K–$500K who want direct self-service DI with minimal fee drag. At 29.2%, Frec's near-zero fee premium means the break-even occurs well below $250K. See the Frec review.
• Altruist Personalized Indexing ($2,000 minimum, no platform fee): emerging option for Wisconsin investors at $50K–$200K through Altruist-custodied RIAs. See the Altruist review.

Sources

1. Wisconsin Department of Revenue — DOR Tax Rates FAQ. Wisconsin individual income tax rates for 2026: 3.54%, 4.65%, 5.3%, and 7.65% (top rate). Top 7.65% rate applies to Wisconsin taxable income above approximately $443,000 for married filing jointly (inflation-adjusted annually). Brackets confirmed via ustax.tools Wisconsin Tax Brackets 2026 and countrytaxcalc.com Wisconsin Income Tax Guide 2026. Verify current-year thresholds at revenue.wi.gov for your specific tax year.
2. Wisconsin DOR Publication 103 — Reporting Capital Gains and Losses for Wisconsin. Wisconsin allows a deduction equal to 30% of net capital gain from assets held more than one year under Wis. Stat. § 71.05(6)(b)9. The 30% exclusion applies to Wisconsin resident investors on all qualifying long-term capital gains. Remaining 70% of net long-term gain is included in Wisconsin taxable income and taxed at the applicable ordinary income bracket (up to 7.65% at top). Short-term capital gains receive no exclusion and are taxed as ordinary income. Effective top-bracket Wisconsin LTCG rate: 7.65% × 70% = 5.355%. Combined federal + WI top rate: 20% + 3.8% NIIT + 5.355% = 29.155%. Cross-verified via taxstra.com Wisconsin Capital Gains Tax 2026, calcleap.com Wisconsin Capital Gains Calculator, and revenue.wi.gov Schedule WD instructions.
3. QSBS Expert — Wisconsin Qualified Small Business Stock and Investor Tax Incentives. Wisconsin enacted Assembly Bill 406 (signed October 25, 2023) updating state conformity to fully match the federal §1202 QSBS exclusion, retroactive to January 1, 2019. Wisconsin subsequently updated its conformity to incorporate OBBBA (2025), including the increased $15M per-issuer cap and tiered 50/75/100% exclusions at 3/4/5-year holding periods. Cross-verified via thestartuplawblog.com 2026 QSBS State Conformity Guide and millancpa.com §1202 state conformity analysis. Wisconsin investors with significant QSBS positions should confirm current conformity with a WI-licensed CPA for their specific tax year and issuer.
4. Tax Foundation — Does Your State Have an Estate or Inheritance Tax? (2026). Wisconsin abolished its state estate tax for deaths occurring on or after January 1, 2008. There is no Wisconsin estate tax, inheritance tax, or gift tax. The federal estate tax exemption of $15 million per person (permanently raised by OBBBA, 2025) applies — combined spousal exemption of $30 million. Cross-verified via smartasset.com Wisconsin Estate Tax and helpafterlife.com Wisconsin Estate Tax 2026.
5. IRS Rev. Proc. 2025-32 — 2026 Inflation Adjustments. Federal LTCG thresholds for 2026: 20% rate applies at $545,500 (single) / $613,700 (MFJ). 15% rate applies between $47,025–$545,500 (single) / $94,050–$613,700 (MFJ). 0% rate below $47,025 (single) / $94,050 (MFJ). NIIT threshold: $200,000 (single) / $250,000 (MFJ) — not inflation-adjusted. Combined 23.8% rate = 20% federal LTCG + 3.8% NIIT for top-bracket investors.

Wisconsin income tax rates (3.54%/4.65%/5.3%/7.65%) and 30% long-term capital gains exclusion verified via Wisconsin DOR Tax Rates FAQ and WI DOR Publication 103 for tax year 2026. Wisconsin brackets are inflation-adjusted annually — verify at revenue.wi.gov for the current tax year. Federal LTCG thresholds per IRS Rev. Proc. 2025-32 for tax year 2026. OBBBA provisions reflect federal law enacted July 2025. Wisconsin QSBS conformity reflects Assembly Bill 406 (signed October 2023) and subsequent OBBBA conformity update — verify with a WI-licensed CPA for your specific issuer and tax year. Harvest rate estimates (1.5%/year) are based on industry research and may vary significantly with market conditions and portfolio characteristics. This page is informational only and does not constitute financial, tax, or legal advice.