What Capital Gains Tax Rates You'll Pay on Investment Profits

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

The federal capital gains tax rate is either 0%, 15%, or 20% on profits from selling stocks, real estate, or other investments you owned for more than one year. Which rate applies to you depends on your total taxable income for that year — not on how much profit you made. The IRS groups taxpayers into three brackets, and your bracket determines your rate.

If you sold an investment you owned for one year or less, the profit is taxed as ordinary income instead, which means it uses your regular income tax bracket (10%, 12%, 22%, 24%, 32%, 35%, or 37%). This is called a short-term capital gain, and it is taxed more heavily than long-term gains.

Your state may also charge its own capital gains tax on top of the federal rate. Some states charge no capital gains tax at all, while others charge between 5% and 13.3% depending on where you live and your income level.

Key Takeaways

• Long-term capital gains (investments held over one year) are taxed at 0%, 15%, or 20% federally, based on your total income that year, not your profit amount.
• Short-term capital gains (investments held one year or less) are taxed as ordinary income using your regular tax bracket, which is higher than long-term rates.
• Your filing status and total taxable income determine which federal bracket you fall into — married couples filing jointly have higher income thresholds than single filers.
• State capital gains taxes range from 0% to 13.3% depending on where you live, and some states do not charge a capital gains tax at all.
• You report capital gains on Schedule D of your tax return and may owe estimated taxes if you expect a large gain in the current year.

How the three federal long-term capital gains brackets work

The 0% bracket applies to long-term gains if your total taxable income stays below a certain threshold. For 2024, that threshold is $47,025 for single filers, $94,050 for married couples filing jointly, and $63,000 for heads of household. If your income falls below these amounts, you pay no federal tax on long-term gains — though you still report them on your tax return.

The 15% bracket covers most middle-income taxpayers. For 2024, it applies to single filers with income between $47,025 and $518,900, and married couples filing jointly between $94,050 and $583,750. This is the rate most people pay on long-term capital gains.

The 20% bracket applies to high-income taxpayers. For 2024, it kicks in at $518,900 for single filers and $583,750 for married couples filing jointly. These thresholds change each year because the IRS adjusts them for inflation.

Your "total taxable income" includes your wages, interest, dividends, and capital gains all added together. If you have a large gain that pushes you into a higher bracket, only the portion of your gain above the threshold is taxed at the higher rate.

The difference between long-term and short-term capital gains

A long-term capital gain comes from selling an investment you owned for more than one year. The IRS counts ownership from the day after you buy it to the day you sell it. If you buy a stock on January 15 and sell it on January 16 of the next year, that is a long-term gain.

A short-term capital gain comes 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 bracket. For someone in the 24% income tax bracket, a short-term capital gain is taxed at 24%, not at the 15% long-term rate. This can make a significant difference on large profits.

The tax code treats long-term and short-term gains differently because Congress wanted to encourage people to hold investments longer. Holding an investment for just over one year can lower your tax bill substantially.

How state capital gains taxes add to your federal bill

Nine states currently charge a capital gains tax: California, Connecticut, Delaware, Illinois, Maryland, Minnesota, New Jersey, New York, and Washington. The rates and rules vary by state. California charges up to 13.3% on high earners, while Illinois charges a flat 4.5% on all capital gains.

Some states tax capital gains the same way the federal government does — using income brackets and different rates for long-term versus short-term gains. Other states use a flat rate regardless of how long you held the investment. A few states only tax capital gains above a certain dollar threshold, so smaller gains may not be taxed at the state level.

If you live in a state with no capital gains tax, you still owe federal tax on your gains. If you live in a state that does charge capital gains tax, you report it separately on your state tax return, usually on a schedule similar to the federal Schedule D.

When you owe estimated taxes on capital gains

If you expect to owe more than $1,000 in federal income tax for the year (including capital gains tax), the IRS may require you to pay estimated taxes four times per year rather than waiting until April. This applies whether your gain comes from selling investments, running a business, or other sources.

Estimated tax payments are due on April 15, June 15, September 15, and January 15 of the following year. If you do not pay enough throughout the year, you may owe a penalty when you file your return, even if you ultimately get a refund.

You calculate estimated taxes using Form 1040-ES, which walks you through the math. If you are unsure whether you need to pay estimated taxes, a tax professional can help you figure out the amount and due dates.

How to report capital gains on your tax return

You report capital gains on Schedule D (Form 8949 Sales of Capital Assets), which is part of your federal tax return. Schedule D asks you to list each sale separately — the date you bought it, the date you sold it, your cost basis (what you paid), the sale price, and your gain or loss.

You separate long-term gains from short-term gains on Schedule D. The form calculates your total long-term and short-term gains, and then you transfer those totals to your main tax return (Form 1040). The IRS uses this information to determine which tax rate applies to your long-term gains.

If you sold only one or two investments, Schedule D is straightforward. If you sold many investments, you may need to attach additional pages or use tax software that handles multiple transactions. Your brokerage sends you a Form 1099-B listing all your sales for the year, which helps you fill out Schedule D accurately.

What happens if you have a capital loss

If you sell an investment for less than you paid for it, you have a capital loss. You can use capital losses to offset capital gains — if you have $5,000 in gains and $2,000 in losses, you report a net gain of $3,000 and pay tax only on that amount.

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

This is why some investors track their losses carefully — a well-timed loss can reduce your tax bill in the current year and save losses for future years when you have larger gains.

Frequently Asked Questions

Do I pay capital gains tax on investments in a 401(k) or IRA?

No. Investments inside a 401(k), traditional IRA, or Roth IRA are not subject to capital gains tax when you sell them. You can buy and sell within these accounts without triggering any tax. With a traditional IRA or 401(k), you pay income tax when you withdraw the money in retirement. With a Roth IRA, may have access to withdrawals are tax-free.

What if I inherited an investment — do I owe capital gains tax on it?

Inherited investments receive a "step-up in basis," which means the cost basis resets to the market value on the date of death. If you inherit a stock worth $10,000 that your parent paid $2,000 for, your cost basis is $10,000. If you sell it when ready for $10,000, you owe no capital gains tax. You only owe tax on gains that happen after you inherit it.

Can I reduce my capital gains tax by donating investments to charity?

Yes. If you donate appreciated investments directly to a may have access to charity, you avoid the capital gains tax on the appreciation and also get a charitable deduction for the full fair market value. This is often more tax-efficient than selling the investment and donating the proceeds.

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

Count the days from the day after you buy to the day you sell. If it is more than 365 days, it is long-term. Your brokerage statement usually labels each sale as long-term or short-term, so you do not have to count manually. If you are unsure, ask your broker or check your account online.

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

No. If you sold an investment for less than you paid, you have a capital loss, not a gain. You report it on Schedule D, and it reduces any capital gains you have that year. If losses exceed gains, you can deduct up to $3,000 against ordinary income.