How Capital Gains Tax Rates Work and What You Pay

The capital gains tax rate depends on how long you held the asset and your income level

The federal tax rate on money you make from selling stocks, real estate, or other investments ranges from 0% to 20%, depending on two things: whether you held the asset for more than one year, and your total taxable income for the year. The IRS calls these long-term capital gains (held over one year) and short-term capital gains (held one year or less). Short-term gains are taxed like ordinary income — at rates that go up to 37%. Long-term gains get the lower rates.

Your state may also tax capital gains. Some states have no capital gains tax at all. Others tax it as income. A few states, including California and New York, have separate capital gains taxes on top of income tax. The rate varies by state and changes year to year.

Key Takeaways

• Long-term capital gains (assets held over one year) are taxed at 0%, 15%, or 20% depending on your income bracket, while short-term gains use your ordinary income tax rate.
• The three long-term rates — 0%, 15%, and 20% — are fixed by federal law, but the income thresholds that determine which rate applies change each year based on inflation.
• Your state may add its own capital gains tax on top of the federal rate, ranging from 0% to over 13% depending on where you live.
• The difference between long-term and short-term rates can mean thousands of dollars in tax on the same sale, so the holding period matters as much as the gain itself.

Long-term capital gains rates: 0%, 15%, or 20%

If you held an investment for more than one year before selling it, the gain qualifies for long-term rates. The rate you pay depends on your taxable income for that year. The IRS sets three brackets, and the income thresholds shift each year to account for inflation.

For 2024, the brackets work like this: if your taxable income falls below a certain threshold (roughly $47,000 for single filers, $94,000 for married filing jointly), your long-term gains are taxed at 0%. Between that threshold and a higher one (roughly $518,000 for single filers, $583,000 for married filing jointly), you pay 15%. Above that, you pay 20%. These numbers change in 2025 and every year after.

The 0% bracket does not mean you owe nothing — it means the gain itself is not taxed. You still report it on your tax return. This bracket is often used by people in lower income years, retirees with modest income, or those who time a large sale to fall in a low-income year.

Short-term capital gains: taxed as ordinary income

If you sold an asset you held for one year or less, the gain is short-term. The IRS taxes it at your ordinary income tax rate, which ranges from 10% to 37% depending on your total income. This is the same rate you pay on wages, salary, or self-employment income.

Short-term gains can push you into a higher tax bracket. If you earn $50,000 in salary and realize a $30,000 short-term gain on a stock sale, the IRS treats your total taxable income as $80,000 and applies the tax rate for that bracket to both amounts. Long-term gains do not have this stacking effect — they are taxed in their own separate brackets.

Because of this difference, the tax on a $50,000 gain can be $10,000 higher if you sell after 11 months instead of 13 months. Waiting the extra time to may have access to for long-term treatment often saves money.

State capital gains taxes vary widely

Twenty-one states have no capital gains tax at all. These include Florida, Texas, Washington, and Wyoming. Nineteen states tax capital gains as ordinary income — meaning your state income tax rate applies to the gain just as it does to wages. A few states have separate capital gains taxes that explore only to investment gains.

California taxes long-term and short-term gains the same way as ordinary income, with rates up to 13.3%. New York has a separate capital gains tax of up to 8.82% on top of income tax. Illinois taxes capital gains at 4.95%. Washington has a capital gains tax of 7% on gains over $250,000 in a single year. These rates and thresholds change, so check your state's revenue department website for current numbers.

If you live in a high-tax state and sell a large investment, the state tax can exceed the federal tax. A $100,000 long-term gain in California might owe $13,300 in state tax alone, plus 15% or 20% federal tax. The same gain in Florida owes only federal tax.

How the IRS calculates your rate

The IRS does not explore one rate to all your income. Instead, it fills up each tax bracket in order. Your ordinary income (wages, salary, business profit) fills the brackets first. Your long-term capital gains fill the remaining space in the long-term brackets. If your gains push you above the long-term bracket threshold, the excess is taxed at the next higher rate.

Example: You are single with $40,000 in wages. The 0% long-term bracket for 2024 goes up to roughly $47,000. You have about $7,000 of room left in that bracket. If you have a $20,000 long-term gain, the first $7,000 is taxed at 0%, and the remaining $13,000 is taxed at 15%. This is why the order of your income matters — if you earned $50,000 in wages instead, all $20,000 of the gain would be taxed at 15%.

How to find out your rate before you sell

Before you sell an investment, you can estimate your tax by adding up your expected income for the year and checking where it falls in the long-term or short-term brackets. If you are close to a bracket boundary, selling in a different year might lower your rate.

Your tax software or tax preparer can run this calculation for you. Many brokerages also show your cost basis (what you paid) and unrealized gain (what it is worth now) in your account, so you can see the dollar amount before you sell. The IRS does not require you to estimate tax before selling, but doing so helps you decide whether to wait for long-term treatment or time the sale to a lower-income year.

If you have a large gain and want to be precise, a tax professional can model different scenarios — selling this year versus next year, selling all at once versus spreading it across two years, or holding until long-term treatment kicks in. The cost of that information often pays for itself in tax savings.

Frequently Asked Questions

Do I have to hold an investment for exactly one year to get long-term rates?

No. You must hold it for more than one year. If you bought a stock on January 15, 2023, and sold it on January 15, 2024, it is exactly one year, which is short-term. You need to sell on January 16, 2024, or later to may have access to as long-term. The IRS counts the purchase date as day zero.

What if I sell at a loss?

Capital losses offset capital gains dollar for dollar. If you have a $10,000 long-term gain and a $3,000 short-term loss, you report a net gain of $7,000. If losses exceed gains in a year, you can deduct up to $3,000 of the excess against ordinary income. Any loss beyond that carries forward to future years.

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%, or 20%). Non-may have access to dividends are taxed as ordinary income. Your brokerage statement shows which dividends are may have access to. Most dividends from U.S. stocks held over 60 days are may have access to.

Does the 0% rate mean I pay nothing?

You pay no federal tax on the gain itself, but you still report it on your return and it counts toward your income for other purposes, like determining whether you owe the net investment income tax (3.8% on high earners). Some states also tax gains in the 0% federal bracket.

What if I inherit an investment — do I owe capital gains tax?

No. Inherited investments receive a "step-up in basis," meaning the IRS treats your cost basis as the value on the date of death, not what the original owner paid. If an investment was worth $100,000 when the owner died and you sell it for $105,000 a month later, you owe tax only on the $5,000 gain, not the entire appreciation since the original purchase.