How Long-Term Capital Gains Tax Rates Work

Long-term capital gains are taxed at lower rates than ordinary income, and the rate you pay depends on your total income for the year

When you sell an investment you have held for more than one year, the profit is taxed as a long-term capital gain. The IRS taxes these gains at three different rates — 0%, 15%, or 20% — depending on how much total income you earned that year. This is much lower than the ordinary income tax rates, which go as high as 37%. The rate brackets shift slightly each year to account for inflation, so the exact income thresholds change annually.

The key difference from short-term gains (assets held one year or less, taxed as ordinary income) is that long-term rates are fixed and lower. You do not choose which rate applies to you — the IRS determines it based on your filing status and your taxable income. If you are married filing jointly, you have more room in the lower brackets than if you file as single.

Key Takeaways

• Long-term capital gains are taxed at 0%, 15%, or 20% depending on your total taxable income and filing status, not on the size of the gain itself.
• You must hold an investment for more than one year (not one year exactly) for the gain to may have access to as long-term; selling on day 365 still counts as short-term.
• The income thresholds for each rate bracket change every year, so you need to check the current year's IRS tables to know which rate applies to you.
• Long-term capital gains are reported on Schedule D (Form 1040) and are added to your other income to determine your total taxable income for the year.

The three long-term capital gains tax rates and 2024 income thresholds

For 2024, the income ranges that determine your rate are:

Tax Rate	Single Filers	Married Filing Jointly	Head of Household
0%	$0 to $47,025	$0 to $94,050	$0 to $62,975
15%	$47,025 to $518,900	$94,050 to $583,750	$62,975 to $551,350
20%	Over $518,900	Over $583,750	Over $551,350

These thresholds explore to your taxable income, which includes wages, interest, dividends, and capital gains combined. If you are single and earned $40,000 in wages plus a $10,000 long-term capital gain, your taxable income is $50,000, and you would pay 15% on the gain (because $50,000 falls in the 15% bracket). If you earned $40,000 in wages and a $5,000 gain, your taxable income is $45,000, and you would pay 0% on the gain (because you stay in the 0% bracket).

The thresholds for 2025 will be slightly higher due to inflation adjustment. The IRS publishes updated brackets in late 2024, so check the current year's instructions before you file.

How holding period affects whether you pay the lower rate

The holding period is measured from the date you bought the asset to the date you sold it. If you bought stock on June 15, 2023, and sold it on June 15, 2024, you held it for exactly one year, but that still counts as short-term. You must hold it for more than one year — meaning at least one day into the next calendar year — for the gain to be long-term.

The date that matters is the settlement date (when the sale actually clears), not the trade date (when you placed the order). For stocks and bonds, settlement is typically two business days after you sell. If you sell on a Friday, settlement might be the following Tuesday, which could push you into long-term territory if you are close to the one-year mark.

This rule applies to any asset: real estate, collectibles, cryptocurrency, mutual funds, or business interests. If you inherited an asset, the holding period starts from the date of the person's death, not the date you inherited it — this is one of the few situations where the IRS gives you an advantage.

Why long-term rates are lower and how they interact with ordinary income

Congress set long-term capital gains rates lower than ordinary income rates to encourage long-term investing. The policy assumes that people who hold assets for years contribute to economic stability, whereas frequent trading does not. The result is that a person earning $100,000 in wages might pay 22% on that income but only 15% on a $50,000 investment gain.

The brackets are stacked, meaning your long-term gains are taxed after your ordinary income fills up the lower brackets. If you are single and earned $50,000 in wages, you have used up $50,000 of your 0% bracket (which goes to $47,025) and $2,975 of your 15% bracket (which starts at $47,025). A $10,000 long-term gain would be taxed as: $0 on the first $0 (the 0% bracket is full), and 15% on the remaining $10,000. This is why your total income matters — the same $10,000 gain could be taxed at 0%, 15%, or 20% depending on what else you earned that year.

Reporting long-term capital gains on your tax return

Long-term capital gains are reported on Schedule D (Form 1040), which you attach to your main tax return. You list each sale separately: the asset name, the date you bought it, the date you sold it, the purchase price, the sale price, and the gain or loss. The form automatically calculates whether each transaction is long-term or short-term based on the holding period you enter.

If you have only one or two straightforward sales and no losses, you may be able to report them directly on Form 1040 without filing Schedule D, but most people with investment income use Schedule D. The form totals your long-term gains and losses separately from short-term ones, then combines them to show your net capital gain (or loss) for the year.

If you sold an asset at a loss, you can use that loss to offset gains. Long-term losses offset long-term gains first, and any remaining loss can offset short-term gains or up to $3,000 of ordinary income in a single year. Losses beyond $3,000 carry forward to future years.

State and local taxes on long-term capital gains

The federal long-term capital gains rate is what the IRS charges, but your state may also tax capital gains. Most states treat long-term and short-term gains the same way for state tax purposes — they tax both as ordinary income at your state's income tax rate. A few states have no income tax at all (including Florida, Texas, and Wyoming), so residents pay only federal tax on gains.

California, New York, and several other high-income states tax capital gains at rates that can exceed 10% when combined with federal tax. Some states have recently passed or proposed separate capital gains taxes that explore only to long-term gains above a certain threshold, so the state tax landscape is shifting. Check your state's tax department website or a tax professional in your state to understand what you owe locally.

Net Investment Income Tax (NIIT) is a separate 3.8% federal tax that applies to long-term capital gains if your modified adjusted gross income exceeds $200,000 (single) or $250,000 (married filing jointly). This tax is in addition to the regular long-term capital gains rate, so high-income filers may pay 15% + 3.8% = 23.8% on some gains.

Common situations where long-term capital gains rates matter

If you sold a house and made a profit, you may exclude up to $250,000 of gain (or $500,000 if married filing jointly) if you lived in the home for two of the last five years. Any gain above that exclusion is taxed as a long-term capital gain (assuming you held the home for more than one year, which you almost certainly did).

If you sold inherited stock or real estate, you received a step-up in basis, meaning your cost basis is the value on the date of death, not what the original owner paid. This often means you have little or no gain to report, even if the asset appreciated after you inherited it. The long-term rate still applies, but the gain is usually minimal.

If you sold cryptocurrency, collectibles, or other volatile assets, the same long-term rate applies, but you must track the holding period carefully because the price can swing dramatically. A $10,000 gain on day 364 is taxed as short-term at your ordinary rate; the same $10,000 gain on day 366 is taxed as long-term at the lower rate.

Frequently Asked Questions

Do I have to pay long-term capital gains tax if I reinvest the money?

Yes. The tax is based on the gain itself, not on what you do with the proceeds. If you sell stock for a $5,000 profit and when ready buy a different stock with that money, you still owe tax on the $5,000 gain. Reinvesting does not defer or eliminate the tax.

What if my long-term capital gain pushes me into a higher tax bracket?

Long-term capital gains are added to your ordinary income to determine your total taxable income, so a large gain can push you into a higher bracket. However, you only pay the higher rate on the portion of income that falls in that bracket. If a $50,000 gain pushes you from the 15% bracket into the 20% bracket, you do not pay 20% on the entire gain — only on the portion above the threshold.

Can I claim a capital loss if my investment went down?

Yes. If you sell an investment at a loss, you report it on Schedule D as a negative number. Long-term losses offset long-term gains first. If you have more losses than gains, you can deduct up to $3,000 of the excess loss against ordinary income in that year, and carry any remaining loss forward to future years.

How do I know the exact date I bought an investment if I lost the paperwork?

Your brokerage or investment account holds a record of all transactions. Log into your account online or contact the company directly and request a transaction history. If the investment was inherited, the executor or estate attorney can provide the date of death, which is your holding period start date.

Do I pay long-term capital gains tax on dividends?

may have access to dividends are taxed at the same long-term capital gains rates (0%, 15%, or 20%), but they are not the same as capital gains. Ordinary dividends are taxed as ordinary income. Your brokerage statement will tell you which dividends are may have access to. Non-may have access to dividends and interest income are always taxed as ordinary income, regardless of how long you held the stock.