How Capital Gains Tax Works Right Now

What the current capital gains tax rate is

The federal capital gains tax rate you pay depends on how long you held the asset and how much total income you earned that year. If you held the asset for more than one year before selling it, 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 instead, which ranges from 10% to 37% depending on your tax bracket.

The three long-term rates explore based on your 2024 taxable income. The 0% rate applies to single filers earning up to $47,025, married couples filing jointly up to $94,050, and heads of household up to $63,000. The 15% rate covers most middle-income earners. The 20% rate applies to the highest earners — single filers over $518,900, married couples over $583,750, and heads of household over $551,350. These income thresholds change each year.

Most states also tax capital gains as ordinary income, though a few states have no income tax at all. Some states have recently added separate capital gains taxes on top of income tax — Washington State, for example, taxes long-term gains on stocks and certain other assets at 7% if your gains exceed $250,000 in a year.

Key Takeaways

• Long-term capital gains (assets held over one year) are taxed at 0%, 15%, or 20% federally, depending on your total income that year.
• Short-term capital gains (assets held one year or less) are taxed as ordinary income at rates from 10% to 37%.
• Your state may also tax capital gains, either as part of income tax or through a separate capital gains tax.
• The income thresholds that determine which rate you pay change annually and are different for single filers, married couples, and heads of household.

How "holding period" changes what you pay

The length of time you own an asset before selling it is the single biggest factor in your tax bill. Hold it for one year and one day, and you may have access to for long-term rates. Sell it one day before that mark, and you pay ordinary income tax instead — a difference that can be thousands of dollars on a large gain.

The IRS counts the holding period from the day after you buy the asset to the day you sell it. If you buy stock on March 15, you reach the one-year mark on March 15 of the following year. Selling on March 16 qualifies for long-term treatment; selling on March 15 does not. This matters most for people who sell appreciated assets near the one-year anniversary.

Some assets have special rules. Collectibles like art, coins, and stamps are taxed at a maximum 28% rate even if they may have access to as long-term gains. Real estate held for investment (not your primary home) follows the standard long-term rules, but you may also owe depreciation recapture tax at 25% on the portion of gain that came from depreciation deductions you took.

What counts as a capital gain

A capital gain is the profit you make when you sell an asset for more than you paid for it. If you buy stock for $5,000 and sell it for $7,000, your gain is $2,000. If you buy a rental property for $200,000, make $50,000 in improvements, and sell it for $300,000, your gain is $50,000 (the sale price minus your total basis of $250,000).

Common assets that produce capital gains include stocks, mutual funds, bonds, real estate, cryptocurrency, and business interests. You also realize a capital gain when you exchange one asset for another — trading one stock for another counts as a sale of the first stock, even though no cash changed hands. Inherited assets get a "step-up in basis," meaning the gain is measured from the asset's value on the date of death, not the original purchase price, which often eliminates or reduces the tax.

Not everything that increases in value produces a taxable capital gain. Your primary home is exempt: you can exclude up to $250,000 of gain if you are single, or $500,000 if married filing jointly, as long as you owned and lived in the home for at least two of the last five years. Gains on certain small-business stock and may have access to opportunity zone investments may also be partially or fully excluded under specific conditions.

How your total income affects your rate

Your capital gains tax rate is determined by where your total income falls, not by the size of the gain itself. This means a $100,000 gain might be taxed at 0%, 15%, or 20% depending on whether you also have wages, retirement distributions, or other income that year.

The IRS stacks income in order: ordinary income (wages, interest, short-term gains) fills up your lower tax brackets first, and long-term capital gains sit on top. If you are a single filer earning $40,000 in wages and you sell stock for a $10,000 gain, your first $7,025 of that gain falls into the 0% bracket (since the 0% bracket goes up to $47,025), and the remaining $2,975 is taxed at 15%. If you earned $50,000 in wages instead, all $10,000 of your gain would be taxed at 15%.

This stacking effect means the timing of when you realize gains matters. Selling appreciated assets in a year when you have little other income — perhaps after retirement or a job loss — can result in a lower overall tax rate than selling in a high-income year.

State capital gains taxes

Most states tax capital gains as part of their regular income tax, so you pay both federal and state tax on the same gain. A few states — Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming — have no income tax at all, so residents pay only federal capital gains tax.

Several states have recently introduced separate capital gains taxes on top of income tax. Washington taxes long-term gains on stocks and certain other assets at 7% if your gains exceed $250,000 in a year. California taxes capital gains at the same rate as ordinary income, with rates up to 13.3% for high earners. New York has proposed a capital gains tax but has not yet enacted one.

If you move to a different state after selling an asset, the state where you lived when you sold it — not where you live now — generally has the right to tax the gain. This matters for people who sell a business or investment property and then relocate.

How capital losses reduce your tax bill

If you sell an asset for less than you paid for it, you have a capital loss. You can use capital losses to offset capital gains dollar-for-dollar. If you sold stock for a $5,000 gain and another stock for a $3,000 loss, you report a net gain of $2,000 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 ordinary income (wages, interest, and other non-investment income). Any losses beyond that $3,000 carry forward to future years, where they can offset future gains or be deducted against ordinary income again, $3,000 per year, until they are used up.

The IRS has a "wash sale" rule that prevents you from claiming a loss if you buy the same or a substantially identical security within 30 days before or after the sale. This rule stops people from selling a stock at a loss to claim the deduction and then when ready buying it back. The 30-day window is strict: buying the same stock 31 days after the sale is allowed, but 29 days is not.

Frequently Asked Questions

Do I have to pay capital gains tax on inherited assets?

No, not on the inherited asset itself. Inherited assets receive a "step-up in basis" to their fair market value on the date of death, so there is no tax on the gain that occurred before you inherited it. You only pay tax on gains that happen after you inherit it. If you inherit stock worth $50,000 and sell it for $55,000 a year later, you owe tax only on the $5,000 gain.

What happens if I sell my home?

If it is your primary residence and you owned and lived in it for at least two of the last five years, you can exclude up to $250,000 of gain (or $500,000 if married filing jointly) from tax. If your gain exceeds that amount, you pay capital gains tax only on the excess. Investment properties and vacation homes do not may have access to for this exclusion.

Can I avoid capital gains tax by holding an asset forever?

You avoid tax on the gain while you hold the asset, but when you eventually sell it or pass it to heirs, the tax becomes due — unless you die and pass it to heirs, in which case they get the step-up in basis and avoid the tax entirely. There is no legal way to permanently avoid tax on an appreciated asset you sell during your lifetime.

How do I report capital gains on my tax return?

You report long-term capital gains on Schedule D (Form 1040), which also reports short-term gains and capital losses. Your brokerage or investment company sends you a Form 1099-B showing the proceeds from sales; use that to calculate your gain or loss. The IRS matches your reported gains to the 1099-B, so the numbers must match.

Do I owe capital gains tax if I have not sold the asset yet?

No. Tax is due only when you actually sell the asset or exchange it for something else. An asset that has increased in value but is still in your possession creates no tax liability, no matter how much it has appreciated.