What Capital Gains Tax Rates Actually Are

The rates depend on how long you held the asset and your income level

Capital gains tax is not one fixed percentage. The rate you pay depends on two things: how long you owned the asset before selling it, and your total income for the year. The IRS treats assets you held for more than one year (long-term gains) differently from assets you sold within a year (short-term gains). Long-term rates are lower. Short-term gains are taxed as ordinary income, which means they use the same brackets as wages and salary.

For long-term capital gains, there are three federal rates: 0%, 15%, and 20%. Which one applies to you depends on your filing status and your taxable income in that year. These rates do not change based on the type of asset or the size of your gain — only on your income bracket.

Key Takeaways

• Long-term capital gains (assets held over one year) are taxed at 0%, 15%, or 20% depending on your income bracket and filing status.
• Short-term capital gains (assets held one year or less) are taxed as ordinary income using the same rates as wages, which range from 10% to 37%.
• Your total income for the year determines which rate applies, not the amount of the gain itself.
• Most states also charge capital gains tax on top of federal tax, though the rate and rules vary by state.

Long-term capital gains brackets for 2024

If you held an asset for more than one year before selling it, you pay long-term rates. For 2024, the 0% rate applies to single filers with taxable income up to $47,025, married filing jointly up to $94,050, and head of household up to $62,975. These thresholds change each year.

The 15% rate applies to income above those thresholds up to $518,900 (single), $583,750 (married filing jointly), or $551,350 (head of household). Anything above those amounts is taxed at 20%. These are federal rates only. Your state may add its own capital gains tax on top.

The key point: your total taxable income for the year determines which bracket you fall into. If you are a single filer with $60,000 in taxable income and you sell stock for a $10,000 gain, your gain pushes you into the 15% bracket, but only the portion of the gain above $47,025 is taxed at 15%.

Short-term capital gains use your ordinary income tax rate

If you held an asset for one year or less, any gain is taxed as short-term capital gains. These are taxed at your ordinary income tax rate — the same rate that applies to your salary or wages. For 2024, those rates range from 10% to 37% depending on your income bracket and filing status.

Short-term gains are added to your other income for the year, and the combined total determines your tax rate. This is why short-term gains are usually more expensive to pay tax on than long-term gains. A trader who buys and sells stock within weeks pays a much higher rate than an investor who holds for years.

State capital gains taxes vary widely

Federal tax is only part of the picture. Most states charge their own capital gains tax or treat capital gains as ordinary income subject to state income tax. A few states have no income tax at all (Florida, Texas, Wyoming, and others), so residents pay only federal tax. Some states tax capital gains at a flat rate, while others use income brackets similar to the federal system.

California, for example, taxes long-term capital gains as ordinary income at rates up to 13.3%. New York taxes them at rates up to 10.9%. Other states have lower rates or tax capital gains differently. If you sell an asset, you need to know both your federal rate and your state rate to understand your total tax bill.

How the net investment income tax adds a third layer

High-income earners may also owe the Net Investment Income Tax (NIIT), which is an additional 3.8% on capital gains. This applies to single filers with modified adjusted gross income over $200,000 and married filing jointly over $250,000. The tax applies only to the lesser of your net investment income or the amount of income above the threshold.

This is a federal tax separate from your regular capital gains tax. If you are in the 20% long-term bracket and also subject to NIIT, your effective federal rate on that gain is 23.8%. State tax would be on top of that.

What happens when you have both long-term and short-term gains in the same year

If you sell multiple assets in one year, you may have both long-term and short-term gains. The IRS treats them separately. Long-term gains use the 0%, 15%, or 20% rates. Short-term gains use your ordinary income rate. You do not blend them into one number.

The order matters too. Short-term gains are taxed first at your ordinary rate, filling up your income brackets from the bottom. Long-term gains are taxed next, starting at the 0% bracket if you have room. This stacking order can affect how much of your long-term gain falls into the 15% or 20% bracket.

How losses offset gains and reduce your tax bill

If you sell an asset at a loss, you can use that loss to offset gains from the same year. If you have $5,000 in long-term gains and $3,000 in long-term losses, you report a net gain of $2,000. If losses exceed gains, you can deduct up to $3,000 of the excess loss against ordinary income in that year. Any remaining loss carries forward to future years.

This is why some investors track their trades carefully — a well-timed loss can reduce your capital gains tax significantly. Losses must be matched by type: long-term losses offset long-term gains first, then short-term gains. Short-term losses offset short-term gains first, then long-term gains.

Frequently Asked Questions

Do I pay capital gains tax on every sale, or only if I make a profit?

You only pay capital gains tax if you sell an asset for more than you paid for it. If you sell at a loss, you do not owe tax on that transaction. You can use losses to offset other gains or, in some cases, ordinary income.

Is the capital gains rate the same every year?

The federal rates (0%, 15%, 20%) stay the same, but the income thresholds that determine which bracket you fall into change each year based on inflation. State rates and rules also vary and may change. Check current rates for the year you are selling.

What if I inherit an asset and then sell it?

Inherited assets receive a "step-up in basis," meaning your cost basis is the asset's value on the date of death, not what the previous owner paid. If you sell shortly after inheriting, you typically owe little or no capital gains tax. This is a significant tax advantage of inheritance.

Can I avoid capital gains tax by holding an asset forever?

You avoid tax only as long as you do not sell. When you eventually sell or pass the asset to heirs, tax becomes due (though heirs get the step-up in basis). The only way to avoid it entirely is to never sell or to donate the asset to charity.

Are dividends taxed the same way as capital gains?

may have access to dividends are taxed at the same long-term capital gains rates (0%, 15%, 20%), but non-may have access to dividends are taxed as ordinary income. The rules for what counts as may have access to are specific and depend on how long you held the stock and other factors.