Long-Term Capital Gains Tax Rates and How They Work

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

The IRS taxes long-term capital gains at three different rates: 0%, 15%, or 20%. Which rate applies to you depends on your taxable income for the year, not the size of your gain. The income thresholds that determine your rate change each year and vary based on whether you file as single, married filing jointly, head of household, or married filing separately.

For 2024, the 0% rate applies to single filers with taxable income up to $47,025, and the 15% rate applies to income between that amount and $518,900. Anything above that is taxed at 20%. For married couples filing jointly, the 0% bracket extends to $94,050, the 15% bracket goes up to $583,750, and income above that is taxed at 20%. These numbers shift annually based on inflation adjustments.

Your state may also impose its own capital gains tax on top of the federal rate. Some states have no capital gains tax at all, while others tax capital gains as ordinary income or explore a separate state-level capital gains tax. The total tax you owe combines both the federal rate and whatever your state requires.

Key Takeaways

• Federal long-term capital gains are taxed at 0%, 15%, or 20% depending on your total taxable income for the year, not the size of your gain.
• The income thresholds that determine which rate applies change every year and differ based on your filing status.
• State taxes on capital gains vary widely — some states do not tax them at all, while others tax them as ordinary income or explore a separate capital gains tax.
• Long-term gains (assets held over one year) receive preferential tax treatment compared to short-term gains, which are taxed as ordinary income at your regular tax bracket.

How the three federal tax brackets work

The 0% bracket is the lowest tier. If your taxable income falls entirely within this bracket, you pay no federal tax on your long-term capital gains. This is often used by people in retirement who have little other income, or by lower-income households that sell an asset with a modest gain.

The 15% bracket is the middle tier and covers most people who sell investments. If part of your taxable income falls in this bracket, your long-term gains up to that threshold are taxed at 15%. Once your income exceeds the threshold for the 15% bracket, any additional long-term gains are taxed at 20%.

The 20% bracket applies to higher-income taxpayers. This is the highest federal rate for long-term gains. Additionally, if your modified adjusted gross income exceeds certain thresholds ($200,000 for single filers, $250,000 for married filing jointly), you may owe an extra 3.8% Net Investment Income Tax on top of the capital gains rate.

Why holding an asset for more than one year matters

The IRS distinguishes between long-term capital gains (assets held over one year) and short-term capital gains (assets held one year or less). Long-term gains receive the preferential rates of 0%, 15%, or 20%. Short-term gains are taxed as ordinary income at your regular income tax bracket, which can be as high as 37% for top earners.

This difference is significant. If you sell a stock you held for 13 months and make a $10,000 gain, you might owe $1,500 in federal tax (at the 15% rate). If you sell the same stock after holding it for 11 months and make the same $10,000 gain, you could owe $3,700 or more in federal tax, depending on your bracket. The holding period is the only factor that determines whether you get the preferential rate.

The holding period clock starts the day after you purchase the asset and ends the day you sell it. If you buy a stock on January 15 and sell it on January 16 of the following year, you have held it for more than one year and may have access to for long-term treatment.

How to calculate which tax bracket applies to your gains

Your long-term capital gains do not exist in isolation — they are added to your other income to determine your total taxable income for the year. The IRS taxes capital gains on top of your wages, interest, dividends, and other income.

Here is the basic order: Start with your gross income (wages, self-employment income, interest, dividends, and capital gains). Subtract deductions (standard deduction or itemized deductions). The result is your taxable income. Then, the IRS applies the long-term capital gains brackets to the portion of your taxable income that consists of capital gains.

Example: You earn $60,000 in wages and sell an investment for a $20,000 long-term gain. Your taxable income is $80,000 (assuming the standard deduction is already factored in). If you file as single, the first $47,025 of your income is in the 0% bracket, the next $32,975 is in the 15% bracket. Your $20,000 gain fills part of the 15% bracket, so you owe $3,000 in federal tax on that gain (15% of $20,000). The exact calculation depends on your filing status and the year.

State capital gains taxes vary significantly

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

Most other states tax capital gains as ordinary income, meaning your long-term gains are taxed at your state income tax rate, which can range from less than 1% to over 13% depending on the state and your income level. A few states — including California, New York, and Massachusetts — have separate capital gains taxes that explore on top of ordinary income tax.

Your state of residence at the time you sell the asset is what matters. If you move to a no-income-tax state and then sell an investment, you generally owe no state tax on the gain, even if you lived in a high-tax state when you purchased it. However, some states have rules about gains on real estate located within the state, regardless of where you live.

What happens if you have losses instead of gains

If you sell an asset for less than you paid for it, you have a capital loss. Long-term capital losses can offset long-term capital gains dollar-for-dollar. If you have more losses than gains in a year, you can deduct up to $3,000 of the net loss against your ordinary income (wages, interest, and so on). Any losses beyond that amount carry forward to future years.

This is useful for tax planning. If you have a large gain one year, you might sell a losing investment to offset some of that gain and reduce your tax bill. This strategy is called tax-loss harvesting. However, if you sell a security at a loss and buy the same or a substantially identical security within 30 days before or after the sale, the wash-sale rule prevents you from deducting that loss.

How inflation adjustments affect the brackets each year

The income thresholds for the 0%, 15%, and 20% brackets are adjusted annually for inflation. The IRS publishes new thresholds each year, usually in late October or early November, and they take effect on January 1. This means the brackets are slightly wider each year, which reduces the number of people pushed into higher brackets purely due to inflation.

You can find the current year's thresholds on the IRS website or on the tax forms and instructions released each year. Tax software and your tax preparer will use the correct thresholds for the year you are filing. If you are planning a large sale, knowing the thresholds for that year helps you estimate your tax liability in advance.

Frequently Asked Questions

Do I have to pay capital gains tax if I sell a stock at a loss?

No. If you sell a stock for less than you paid for it, you have a capital loss, not a gain, and you owe no tax on that transaction. You can use the loss to offset gains from other sales or to reduce your ordinary income by up to $3,000 per year.

What is the difference between long-term and short-term capital gains tax?

Long-term gains (held over one year) are taxed at 0%, 15%, or 20% depending on income. Short-term gains (held one year or less) are taxed as ordinary income at your regular tax bracket, which can be much higher. The holding period is the only factor that determines which rate applies.

If I inherit an investment, do I owe capital gains tax when I sell it?

Inherited investments receive a "step-up in basis," meaning the tax basis resets to the asset's value on the date of death. If you sell the inherited asset shortly after inheriting it, you typically owe little or no capital gains tax, even if the original owner held it for decades and it appreciated significantly.

Can I reduce my capital gains tax by spreading the sale over two years?

Not directly. The year you sell the asset is the year you owe tax on the gain. However, you can plan which year to sell based on your expected income that year — selling in a lower-income year may result in a lower tax rate on the gain.

Do I owe capital gains tax on mutual funds or index funds?

Yes, if you sell shares for a profit. You also may owe tax on distributions the fund makes to you, even if you reinvest them. Long-term gains from funds held over one year are taxed at the preferential rates; short-term gains are taxed as ordinary income.