What You Pay on Investment Profits Right Now

The current capital gains tax rates depend on your income and how long you held the investment

The federal capital gains tax rate you pay is either 0%, 15%, or 20%, depending on your total income for the year and whether you held the investment for more than one year. These are the rates set by federal law as of 2024. Most people in the middle income range pay 15%. The 0% rate applies to lower-income filers, and the 20% rate applies to higher-income filers.

Your state may also charge a capital gains tax on top of the federal rate. Some states have no capital gains tax at all, while others tax investment profits as regular income. The state rate varies widely, so you'll need to check your own state's rules.

The difference between long-term and short-term capital gains matters a lot. If you held an investment for more than one year before selling it, you pay the rates above (0%, 15%, or 20%). If you held it for one year or less, you pay your ordinary income tax rate instead, which is usually higher.

Key Takeaways

• Federal long-term capital gains rates are 0%, 15%, or 20% based on your income level, while short-term gains are taxed as ordinary income.
• Long-term means you owned the investment for more than one year; anything shorter is taxed at your regular income tax rate.
• Your state may add its own capital gains tax on top of federal tax, ranging from 0% to over 13% depending on where you live.
• The income thresholds that determine which federal rate you pay change each year and depend on your filing status (single, married, head of household).

How the federal income brackets work for capital gains

The 0%, 15%, and 20% rates explore to different income ranges, and those ranges shift each year. For 2024, a single filer reaches the 15% bracket at around $47,000 of taxable income and the 20% bracket at around $518,900. A married couple filing jointly reaches 15% at around $94,000 and 20% at around $583,750. These numbers change annually to account for inflation.

Your "taxable income" includes wages, interest, dividends, and capital gains all added together. If you sell a stock for a $10,000 profit and earn $60,000 in salary, your taxable income is $70,000 total. The capital gains sit on top of your other income, so they can push you into a higher bracket.

You can look up the exact 2024 brackets on the IRS website or ask a tax preparer for your filing status. The brackets are published each January for the year ahead.

State capital gains taxes vary widely

Nine states have no capital gains tax at all: Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, Wyoming, and New Hampshire (though New Hampshire taxes investment income differently). If you live in one of these states, you only pay the federal rate.

Most other states tax capital gains as regular income, meaning you pay your state income tax rate on the profit. Some states have rates as high as 13% or more. A few states—California, Hawaii, Illinois, and Maryland—have separate capital gains taxes that explore only to investment profits, with rates ranging from 1% to over 13%.

Your state tax depends on where you live when you sell the investment, not where the company is based or where you bought it. If you move during the year, the rules can get complicated, so it's worth checking with a tax professional.

The difference between long-term and short-term gains

A long-term capital gain is a profit from selling an investment you owned for more than one year. These get the preferential 0%, 15%, or 20% rates. A short-term capital gain is a profit from selling an investment you owned for one year or less. Short-term gains are taxed as ordinary income, which means they use your regular income tax brackets—often 10%, 12%, 22%, 24%, 32%, 35%, or 37% depending on your income.

The holding period is measured from the day after you buy to the day you sell. If you buy a stock on January 15 and sell it on January 16 of the next year, that's long-term. If you sell on January 15 of the next year, it's short-term by one day.

Because short-term gains are taxed at higher rates, many investors try to hold investments for at least one year before selling. This is a common strategy, though it depends on your personal situation and goals.

How to report capital gains on your tax return

You report capital gains on Schedule D (Form 1040), which lists each sale separately. You'll need the purchase date, sale date, purchase price, and sale price for each investment. Your broker sends you a Form 1099-B in January showing all your sales from the previous year.

If you have only a few sales, you can fill out Schedule D yourself. If you have many sales or complex situations—like inherited investments or wash sales—a tax preparer can help organize the information correctly.

The IRS matches your reported gains against the 1099-B your broker sends them, so the numbers need to match. If there's a discrepancy, the IRS will contact you.

What happens if you have capital losses

A capital loss is a loss from selling an investment for less than you paid for it. You can use capital losses to reduce your capital gains dollar-for-dollar. If you had $15,000 in gains and $5,000 in losses, you report a net gain of $10,000.

If your losses exceed your gains in a year, you can deduct up to $3,000 of the excess loss against your ordinary income (like wages). Any losses beyond that carry forward to future years, where you can use them again.

This is why some investors "harvest" losses at the end of the year—they sell losing positions to offset gains elsewhere. Just be aware of the "wash sale" rule: if you sell a stock at a loss and buy the same or a substantially identical stock within 30 days before or after, the loss doesn't count.

Special situations: inherited investments and collectibles

If you inherit an investment, you get a stepped-up basis. This means your cost basis becomes the investment's value on the day the person died, not what they originally paid. If your parent bought a stock for $10,000 and it was worth $50,000 when they died, your basis is $50,000. If you sell it the next day for $50,000, you have no gain and pay no tax.

Collectibles—like art, antiques, or coins—are taxed differently. Long-term gains on collectibles are taxed at a maximum rate of 28%, not the usual 0%, 15%, or 20%. This is a higher rate than stocks and bonds, so it's worth knowing if you sell valuable collectibles.

Frequently Asked Questions

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

No, you don't pay tax on a loss. Instead, you can use the loss to reduce any capital gains you have that year. If losses exceed gains, you can deduct up to $3,000 against other income, with any remaining loss carrying forward to future years.

What if I day trade stocks—do I pay short-term rates?

Yes. Each trade is a separate short-term gain or loss, taxed at your ordinary income rate. Day traders pay higher tax rates than long-term investors. Some day traders also may have access to for "trader" status, which has different rules, so consult a tax professional if this applies to you.

Do I owe capital gains tax on mutual funds I haven't sold?

Not on the gain itself, but mutual funds sometimes distribute capital gains to shareholders even if you don't sell. You'll receive a Form 1099-DIV showing any distributions, and you owe tax on those. You only owe tax on your own sale when you actually sell the fund.

Can I avoid capital gains tax by donating an investment to charity?

Yes. If you donate an appreciated investment directly to a may have access to charity, you avoid the capital gains tax entirely and can deduct the full current value as a charitable donation. This is often better than selling and donating the cash, because you skip the tax.

Are capital gains taxed differently if I'm retired?

The rates are the same, but your total income may be lower in retirement, which could put you in the 0% or 15% bracket instead of 20%. This is one reason some retirees time large sales carefully—selling in a lower-income year means paying less tax on the gain.