How Capital Gains Tax Rates Work and What You'll Pay

Capital gains tax rates depend on how long you held the asset and your income level

The tax rate you pay on capital gains is not one fixed number. The IRS taxes capital gains at different rates based on two things: whether you held the asset for more than one year (long-term) or one year or less (short-term), and your total taxable income for the year. Short-term capital gains are taxed as ordinary income — the same rates that explore to wages and salary. Long-term capital gains get preferential rates: 0%, 15%, or 20%, depending on your income bracket.

This matters because the difference between short-term and long-term rates can be substantial. If you sell a stock after holding it for 13 months instead of 11 months, you could owe significantly less tax on the same profit. Understanding which rate applies to your situation helps you know what to expect when you file.

Key Takeaways

• Short-term capital gains (assets held one year or less) are taxed at your ordinary income tax rate, which ranges from 10% to 37% depending on your income and filing status.
• Long-term capital gains (assets held more than one year) are taxed at 0%, 15%, or 20%, with the rate determined by your total taxable income, not the gain amount alone.
• Your filing status — single, married filing jointly, head of household — determines which income thresholds put you in each capital gains rate bracket.
• The long-term rate brackets change each year because the IRS adjusts them for inflation, so the exact dollar amounts vary year to year.
• You report capital gains on Schedule D (Form 1040), and the IRS matches your reported gains against what brokers report on Form 1099-B.

Short-term capital gains are taxed like your regular income

When you sell an asset you have owned for one year or less, any profit counts as a short-term capital gain. The IRS taxes this gain at your ordinary income tax rate — the same rate applied to your wages, salary, or self-employment income. For the 2024 tax year, those rates are 10%, 12%, 22%, 24%, 32%, 35%, and 37%, depending on your total taxable income and filing status.

This means a short-term capital gain is added to your other income for the year, and the combined total determines your tax bracket. If you are in the 24% tax bracket and you have a $5,000 short-term capital gain, that gain is taxed at 24%. If you are in the 32% bracket, it is taxed at 32%. There is no preferential rate for short-term gains — they are treated exactly like wages.

The practical effect is that short-term trading can be expensive from a tax standpoint. Many investors hold assets longer specifically to may have access to for the lower long-term rates.

Long-term capital gains get lower tax rates based on your income

If you hold an asset for more than one year before selling it, any profit is a long-term capital gain, and it receives preferential tax treatment. Instead of your ordinary income rate, long-term gains are taxed at 0%, 15%, or 20%. Which rate you pay depends on your taxable income and filing status — not on the size of the gain itself.

For 2024, the 0% rate applies to single filers with taxable income up to $47,025 and married couples filing jointly with income up to $94,050. The 15% rate applies to income above those thresholds up to $518,900 (single) or $583,750 (married filing jointly). Anything above those amounts is taxed at 20%. These thresholds are adjusted annually for inflation, so the exact numbers change each year.

The key point is that your long-term capital gains rate is determined by where your total income falls, not by how much you gained. A person in the 0% bracket can have a $100,000 long-term gain and still pay zero tax on it. A person in the 15% bracket pays 15% on the entire long-term gain, regardless of size.

Your filing status determines which income brackets explore

The income thresholds for each capital gains rate are different depending on whether you file as single, married filing jointly, married filing separately, or head of household. Married couples filing jointly have higher thresholds, which means they can have more income before moving into a higher capital gains rate bracket.

For example, in 2024, a single filer enters the 15% long-term capital gains bracket at $47,025 of taxable income. A married couple filing jointly enters that same bracket at $94,050. This is one reason married couples sometimes benefit from filing jointly — they can realize more long-term gains at the 0% or 15% rate before hitting the 20% bracket.

If you are married but file separately, your thresholds are much lower, and you will move into higher brackets faster. Head of household filers have thresholds between single and married filing jointly. You need to know your filing status and your total taxable income to determine which long-term capital gains rate applies to you.

Capital gains rates change each year because of inflation adjustments

The IRS adjusts the income thresholds for capital gains brackets every January to account for inflation. This means the exact dollar amounts that determine whether you are in the 0%, 15%, or 20% bracket shift from year to year. The rates themselves (0%, 15%, 20%) do not change, but the income levels that trigger each rate do.

This adjustment matters if you are close to a bracket threshold. You might be in the 15% bracket one year and the 0% bracket the next year, even if your income stayed the same, because the thresholds moved. The IRS publishes updated brackets in late December or early January each year, and tax software automatically uses the current year's numbers.

When you are planning a large sale or considering when to realize a gain, checking the current year's thresholds helps you estimate your tax bill accurately. A tax professional or your tax software can show you the exact brackets for your filing status and the current year.

How to report capital gains on your tax return

You report capital gains on Schedule D (Form 1040), which is part of your federal income tax return. Schedule D has separate sections for short-term gains (Part I) and long-term gains (Part II). You list each sale separately, showing the date you bought the asset, the date you sold it, your cost basis, the sale price, and the gain or loss.

Your broker sends you a Form 1099-B for each account showing all the sales you made during the year. The IRS receives a copy of this form, so they know what gains you reported. If your Schedule D does not match the 1099-B, the IRS will flag it. You need to keep records of your original purchase price and date, because the 1099-B may not have accurate cost basis information — that is your responsibility to provide.

If you have a net capital loss (losses exceed gains), you can deduct up to $3,000 of the loss against your ordinary income in a single year. Any loss beyond $3,000 carries forward to future years. This is why keeping detailed records of both gains and losses matters — losses can offset gains and reduce your tax bill.

State and local taxes may explore on top of federal capital gains tax

The federal capital gains rates described above are only part of your total tax bill. Most states also tax capital gains, and some cities do as well. State capital gains tax rates vary widely — some states have no capital gains tax at all, while others tax long-term gains at rates ranging from 5% to over 13%.

A few states, including California, New York, and Oregon, tax long-term capital gains at the same rate as ordinary income, which means your state rate could be higher than your federal rate. Other states have a separate, lower rate for long-term gains. You need to check your state's rules to know your complete tax picture. Your state tax return will have its own capital gains reporting section, usually similar to the federal Schedule D.

Frequently Asked Questions

Do I pay capital gains tax if I sell at a loss?

No. If you sell an asset for less than you paid for it, you have a capital loss, not a gain. You do not owe tax on a loss. Instead, you can use the loss to offset capital gains from other sales, or deduct up to $3,000 of net losses against your ordinary income in a single year. Losses beyond $3,000 roll forward to future years.

What if I hold an asset for exactly one year — is it short-term or long-term?

It is short-term. Long-term gains require holding the asset for more than one year. If you buy on January 15 and sell on January 15 the next year, that is exactly one year, which counts as short-term. You must hold it until at least January 16 to may have access to as long-term. The holding period is measured from the day after purchase to the day of sale.

Can I choose which assets to sell to minimize my capital gains tax?

Yes, if you own multiple shares or units of the same asset. You can specify which lot you are selling — for example, the shares you bought earliest (FIFO), the shares you bought most recently (LIFO), or specific shares you identify. This is called specific lot identification. Your broker can help you designate which shares to sell, and you must document this choice. Using this method, you can sell higher-cost shares to reduce your gain.

Do I owe capital gains tax on inherited assets?

Generally, no. Inherited assets receive a step-up in basis, which means their cost basis is reset to their fair market value on the date of death. If you inherit stock worth $50,000 and it was worth $20,000 when the person died, your basis is $50,000. If you sell it when ready for $50,000, you have no gain and owe no tax. You only owe tax on gains that occur after you inherit the asset.

How do I know if my capital gains are taxed at 0%, 15%, or 20%?

Look up the current year's long-term capital gains brackets for your filing status on the IRS website or in your tax software. Find your total taxable income (including the capital gains). See which bracket your income falls into. That bracket's rate is your capital gains rate. If your income is below the 0% threshold, your long-term gains are taxed at 0%. If it is between the 0% and 15% thresholds, you pay 15%, and so on.