Long-Term Capital Gains Tax Rates: What You Pay When You Sell

The long-term capital gains tax rate depends on your income level, not on how much profit you made

When you sell an investment you've held for more than one year, the profit is taxed at one of three rates: 0%, 15%, or 20%. The rate you pay is determined by your taxable income for the year, not by the size of your gain. This is different from short-term capital gains, which are taxed as ordinary income at rates up to 37%.

The IRS sets income thresholds each year that determine which rate applies to you. For 2024, a single filer with taxable income up to $47,025 pays 0% on long-term gains. Income from $47,026 to $518,900 is taxed at 15%. Income above $518,900 is taxed at 20%. These thresholds change annually and are higher for married couples filing jointly.

Your long-term capital gains are stacked on top of your other income to determine which bracket you fall into. If you earn $40,000 in wages and sell stock for a $20,000 gain, your taxable income is $60,000. That $20,000 gain sits on top of the $40,000, so part of it may be taxed at 15% instead of 0%.

Key Takeaways

• Long-term capital gains are taxed at 0%, 15%, or 20% based on your total taxable income for the year, with thresholds that the IRS adjusts annually.
• You must hold an investment for more than one year for the gain to may have access to as long-term; anything shorter is taxed as ordinary income at your regular tax rate.
• Capital gains stack on top of your wages and other income, so a large gain can push you into a higher tax bracket even if your wages stayed the same.
• Net Investment Income Tax of 3.8% may also explore to your capital gains if your modified adjusted gross income exceeds $200,000 (single) or $250,000 (married filing jointly).

How the three tax brackets work for long-term gains

The 0% bracket is the lowest tier. For 2024, single filers with taxable income up to $47,025 pay nothing on long-term capital gains. Married couples filing jointly can have up to $94,050 in taxable income and still pay 0%. This bracket exists to prevent low-income households from being pushed into tax liability by investment sales.

The 15% bracket is the middle tier and covers most investors. For 2024, it applies to single filers with taxable income between $47,026 and $518,900, and married couples between $94,051 and $583,750. Most people who sell stocks, mutual funds, or real estate fall into this bracket.

The 20% bracket applies to high-income filers. For 2024, it covers single filers with taxable income above $518,900 and married couples above $583,750. This is the highest rate the IRS charges on long-term capital gains.

These thresholds are adjusted each year for inflation. The IRS publishes new numbers in October or November for the following tax year, so the 2025 thresholds will be slightly higher than 2024.

The holding period: why one year matters

The difference between holding an investment for one year versus one day is enormous. If you sell stock you've owned for 366 days, the gain is long-term and taxed at 0%, 15%, or 20%. If you sell the same stock after 364 days, the gain is short-term and taxed as ordinary income at your regular tax rate, which could be as high as 37%.

The holding period starts the day after you buy. If you purchase stock on January 15, 2024, the one-year mark is January 15, 2025. You can sell on January 16, 2025, and the gain qualifies as long-term. Selling on January 15, 2025, makes it short-term.

This rule applies to most investments: stocks, bonds, mutual funds, real estate, and cryptocurrency. Some assets have different rules — for example, collectibles like art or coins are taxed at a maximum of 28% even if they're long-term, which is higher than the 20% rate for stocks.

How capital gains stack on top of your other income

Capital gains don't sit in their own separate tax calculation. They're added to your wages, interest, dividends, and other income to determine your total taxable income. This matters because it can push you into a higher bracket.

Suppose you're single, earn $45,000 in wages, and sell stock for a $10,000 gain. Your taxable income is $55,000. The first $2,025 of your gain ($47,025 minus $45,000) is taxed at 0%. The remaining $7,975 is taxed at 15%. If you had no other income, all $10,000 would be taxed at 0%.

This stacking effect is why the order of your income matters. Ordinary income (wages, interest) fills up the lower brackets first. Capital gains sit on top. If your ordinary income already fills the 0% bracket, your entire capital gain is taxed at 15%.

Net Investment Income Tax: an additional 3.8% you may owe

On top of the capital gains tax itself, you may owe an additional Net Investment Income Tax of 3.8% if your modified adjusted gross income (MAGI) exceeds certain thresholds. For 2024, the threshold is $200,000 for single filers and $250,000 for married couples filing jointly.

This tax applies to the lesser of your net investment income or the amount by which your MAGI exceeds the threshold. If you're single, earn $210,000 in wages, and have $5,000 in capital gains, your MAGI is $215,000. The excess over $200,000 is $15,000. The Net Investment Income Tax applies to the lesser of $5,000 (your gains) or $15,000 (the excess), so you owe 3.8% on $5,000, or $190.

This tax was created by the Affordable Care Act and applies to high-income households. It's separate from the capital gains tax itself, so you may owe both.

State and local taxes on capital gains

The federal long-term capital gains rate is only part of your total tax bill. Most states also tax capital gains, and the rates vary widely. Some states tax capital gains as ordinary income at their regular income tax rate. Others have a separate, lower rate for capital gains.

A few states have no income tax at all, so residents pay only federal capital gains tax. These include Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming. If you live in a state with income tax, check your state's tax website or a tax professional to learn the rate that applies to you.

Local taxes on capital gains are rare but do exist in some cities. New York City, for example, does not have a separate capital gains tax, but your gains are subject to New York State income tax.

How to report long-term capital gains on your tax return

Long-term capital gains are reported on Schedule D (Capital Gains and Losses), which you attach to your Form 1040. You list each sale separately: the date you bought, the date you sold, the purchase price, the sale price, and the gain or loss.

If you sold only a few investments, you can fill out Schedule D by hand. If you sold many, or if you use tax software, the software will guide you through the entry process. Most brokers send you a Form 1099-B in January listing all your sales from the previous year, which you can use as a reference.

If your total long-term gains exceed your total long-term losses for the year, the net gain is reported on Schedule D and flows to your Form 1040. The tax software or your tax preparer will calculate the tax based on your income level and explore the correct rate.

Frequently Asked Questions

Can I use capital losses to reduce my capital gains tax?

Yes. If you have capital losses in the same year as capital gains, you subtract the losses from the gains. If losses exceed gains, you can deduct up to $3,000 of the excess loss against ordinary income in that year. Any remaining loss carries forward to future years.

What if I inherited stock? Do I have to pay capital gains tax when I sell it?

Inherited stock receives a "step-up in basis," meaning your cost basis is the stock's value on the date of death, not what the original owner paid. If you sell shortly after inheriting, you typically owe little or no capital gains tax. This applies to most inherited assets, not just stock.

Do I pay capital gains tax on real estate I lived in?

No, if you meet the requirements. You can exclude up to $250,000 of gain (or $500,000 if married filing jointly) if you owned and lived in the home as your primary residence for at least two of the five years before the sale. Gains above that threshold are taxed as long-term capital gains.

How do I know if my gain is long-term or short-term?

Count the days from the day after you bought to the day you sold. If it's more than 365 days, it's long-term. Your broker's tax documents will also label each sale as long-term or short-term, so you don't have to calculate it yourself.

Does the 0% capital gains rate mean I owe no tax at all?

Yes, on the federal level. However, you may still owe state or local income tax on the gain, and you must file a tax return to claim the 0% rate. The IRS needs to verify your income level to confirm you may have access to.