Current Capital Gains Tax Rates and How They Apply to Your Investments

Federal capital gains tax rates in 2024

The federal tax rate on capital gains depends on how long you held the investment and your total income for the year. If you held the asset for more than one year, you pay the long-term capital gains rate: 0%, 15%, or 20%. If you held it for one year or less, you pay your ordinary income tax rate, which ranges from 10% to 37% depending on your tax bracket — this is called the short-term capital gains rate.

The long-term rates of 0%, 15%, and 20% explore based on your filing status and taxable income. 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 $63,000. The 15% rate applies to income above those thresholds up to a second limit, and the 20% rate applies to income above that second limit. These income thresholds adjust each year for inflation.

State and local taxes on capital gains vary widely. Some states do not tax capital gains at all, while others tax them as ordinary income. A few states, including California, New York, and Illinois, have enacted or are considering additional taxes specifically on high-income earners' capital gains. You will owe both federal and state tax on the same gain unless you live in a state with no capital gains tax.

Key Takeaways

• Long-term capital gains (held over one year) are taxed at 0%, 15%, or 20% federally depending on your income and filing status; short-term gains are taxed as ordinary income at rates up to 37%.
• The income thresholds that determine which long-term rate you pay adjust annually for inflation and differ by filing status.
• State capital gains taxes range from zero to ordinary income rates, and some states have added surtaxes on high earners' gains.
• You calculate capital gains by subtracting your cost basis (what you paid plus certain expenses) from the sale price.

How holding period affects your tax rate

The length of time you own an investment before selling it is the single largest factor in determining your tax rate. Hold it for one year or less, and any profit is a short-term capital gain taxed at your marginal income tax rate — the same rate you pay on wages or salary. This can be as high as 37% for high earners.

Hold it for more than one year, and the profit becomes a long-term capital gain, which qualifies for the preferential 0%, 15%, or 20% rates. The IRS counts the holding period from the day after you buy to the day you sell. If you buy on January 15 and sell on January 16 of the next year, you have held it long-term. If you sell on January 15 of the next year, you have held it short-term.

This distinction matters most for volatile investments or those you plan to trade frequently. A stock that doubles in value in six months will be taxed at your full income tax rate if you sell. The same stock held for 13 months is taxed at the long-term rate, which for most people is 15% or less.

What counts as your cost basis

Your cost basis is what you paid for the investment, and it is the foundation for calculating your gain or loss. For a stock purchase, it is the price per share times the number of shares, plus any commissions or fees you paid to buy it. For inherited investments, the cost basis is usually the market value on the date of the person's death, not what they originally paid — this is called a step-up in basis.

If you reinvest dividends or make additional purchases in the same investment, each purchase has its own cost basis. When you sell, you must specify which shares you are selling — first in, first out (FIFO) is the default method if you do not specify, but you can use average cost or specific identification to potentially lower your tax. Mutual funds and brokerages track this for you, but you are responsible for reporting it correctly on your tax return.

Certain expenses can increase your cost basis. Brokerage fees, advisory fees paid directly to buy or sell, and legal fees to defend your ownership all count. Ongoing advisory fees or management fees do not increase basis — they are deductible separately, if at all. Keep records of all purchases, sales, and fees for at least three years after you file the return reporting the sale.

Net capital gains and losses in a single year

If you sell multiple investments in the same year, you combine all your short-term gains and losses, then all your long-term gains and losses. Short-term losses offset short-term gains first, and long-term losses offset long-term gains first. If you have a net loss in either category, you can use up to $3,000 of that loss to offset ordinary income in the current year.

Any loss above $3,000 carries forward to future years with no time limit. If you have a net long-term gain and a net short-term loss (or vice versa), the loss offsets the gain, and you pay tax only on the net amount. This layering of gains and losses is why tracking each transaction matters — a large short-term loss can shelter a long-term gain from tax entirely.

The IRS requires you to report all capital gains and losses on Schedule D of your tax return, regardless of whether you have a net gain or loss. If you have no gains or losses, you do not file Schedule D. Brokerages report your transactions to the IRS on Form 1099-B, so the IRS will know if you sold something — reporting it correctly on your return is essential.

How tax-advantaged accounts change the picture

If you own investments inside a traditional IRA, Roth IRA, 401(k), or other tax-advantaged retirement account, capital gains tax does not explore when you sell within the account. You can buy and sell stocks, bonds, or mutual funds inside these accounts without triggering any tax on the gains. The tax treatment depends on the account type, not on the gain itself.

In a traditional IRA or 401(k), you pay ordinary income tax on the entire withdrawal amount when you take money out in retirement — the gains are taxed then, not when you sell the investment. In a Roth IRA, may have access to withdrawals are tax-free, so the gains are never taxed. In a taxable brokerage account, you pay capital gains tax when you sell, regardless of whether you reinvest the proceeds.

This is why the account you use matters as much as the investment itself. A stock that gains $10,000 in a taxable account might cost you $1,500 in federal capital gains tax (at the 15% long-term rate). The same stock in a Roth IRA costs you nothing in tax. Understanding which account to use for which investment is a separate decision from understanding the capital gains tax rate.

State and local capital gains taxes

Nine states have no income tax at all and therefore no capital gains tax: Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, Wyoming, and New Hampshire (which taxes only dividends and interest, not capital gains). If you live in one of these states, you owe only federal capital gains tax.

Most other states tax capital gains as ordinary income, meaning your state rate depends on your state tax bracket. California taxes long-term and short-term gains identically as ordinary income, with rates up to 13.3%. New York's top rate is 10.9%. These state rates stack on top of the federal rate, so a California resident in the 20% federal long-term bracket pays 20% federal plus up to 13.3% state, for a combined 33.3% rate.

Several states have enacted or proposed surtaxes on capital gains for high earners. California, New York, Illinois, and Washington have versions of these taxes, with thresholds and rates that vary. Some explore only to gains above a certain dollar amount in a single year; others explore to gains above a certain income level. If you are considering a large sale or have moved states recently, checking your state's current capital gains tax rules is essential.

Frequently Asked Questions

Do I pay capital gains tax on investments I have not sold yet?

No. Capital gains tax applies only when you sell the investment and realize the gain. An investment that has increased in value but you still own is an unrealized gain and is not taxed. You pay tax only in the year you sell.

What is the difference between capital gains and dividends?

Capital gains are profits from selling an investment for more than you paid. Dividends are payments a company makes to shareholders from its earnings. may have access to dividends (held for more than 60 days) are taxed at the same long-term capital gains rates. Nonqualified dividends are taxed as ordinary income.

Can I deduct a capital loss from my taxes?

Yes, but with limits. You can use up to $3,000 of net capital losses to offset ordinary income in the current year. Any loss above $3,000 carries forward to future years indefinitely. You cannot use capital losses to offset capital gains in a different category without first offsetting within that category.

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

No. If you sell an investment for less than you paid, you have a capital loss, not a gain. You do not owe tax on the sale. You can use the loss to offset capital gains or, up to $3,000 per year, ordinary income.

What happens to capital gains tax if I inherit an investment?

Inherited investments receive a step-up in basis, meaning your cost basis is the market value on the date of death, not what the original owner paid. If you sell shortly after inheriting, you likely owe little or no capital gains tax. This applies to most inherited assets, though some exceptions exist for certain retirement accounts.