How Capital Gains Tax Rates Work and What You'll Pay

Capital gains tax rates depend on how long you held the asset and your income level

The federal tax rate on capital gains is either 0%, 15%, or 20% — but which rate applies to you depends on two things: whether you held the asset for more than one year (long-term) or one year or less (short-term), and your taxable income for that year. Long-term capital gains get preferential rates. Short-term capital gains are taxed as ordinary income, meaning they use the same tax brackets as wages and salaries, which range from 10% to 37% depending on your income.

Beyond the federal rate, you may also owe state capital gains tax (which varies by state) and, if your income is high enough, a 3.8% net investment income tax. This means your total effective rate can be significantly higher than the federal rate alone.

Key Takeaways

• Long-term capital gains (assets held over one year) are taxed at 0%, 15%, or 20% federally, based on your taxable income bracket.
• Short-term capital gains (assets held one year or less) are taxed as ordinary income at rates from 10% to 37%.
• Your total tax bill includes federal tax, state tax (which varies by state), and potentially a 3.8% net investment income tax if your income exceeds certain thresholds.
• The income thresholds that determine which long-term rate you pay change each year and differ based on filing status (single, married filing jointly, etc.).

Long-term capital gains rates and income thresholds

If you held an asset for more than one year before selling it, the gain qualifies for long-term treatment. The federal rate you pay depends on your taxable income and filing status. For 2024, the thresholds are:

Tax Rate	Single Filers	Married Filing Jointly	Head of Household
0%	Up to $47,025	Up to $94,050	Up to $62,975
15%	$47,025 to $518,900	$94,050 to $583,750	$62,975 to $551,350
20%	Over $518,900	Over $583,750	Over $551,350

These thresholds adjust annually for inflation, so the numbers change each year. The IRS publishes updated thresholds in the fall for the following tax year. Your taxable income includes wages, interest, dividends, and capital gains combined — so a large capital gain can push you into a higher bracket even if your wages stayed the same.

Short-term capital gains and ordinary income tax rates

If you held an asset for one year or less before selling it, the gain is short-term and taxed as ordinary income. This means it uses the standard income tax brackets, which for 2024 range from 10% to 37% depending on your total taxable income and filing status. Short-term gains do not receive preferential treatment.

Because short-term gains are added to your other income, a large short-term gain can push you into a much higher tax bracket. For example, if you are a single filer with $60,000 in wages and you realize a $100,000 short-term capital gain, your total taxable income is $160,000, which puts you in the 24% bracket for that additional gain — not the 12% bracket you would be in with wages alone.

State capital gains taxes

Most states do not have a separate capital gains tax; instead, they tax capital gains as part of ordinary income using their regular state income tax rates. However, a growing number of states have introduced dedicated capital gains taxes on high-income earners. These include California, Connecticut, Illinois, Maryland, Minnesota, New Jersey, New York, Oregon, Vermont, and Washington.

State capital gains tax rates and income thresholds vary widely. Some states tax only gains above a certain dollar threshold (for example, Washington taxes long-term gains over $250,000 at 7%), while others explore the tax to all gains above an income threshold. A few states have no income tax at all, so residents pay no state capital gains tax. You will owe tax to the state where you live, regardless of where the asset is located.

Net investment income tax on high earners

If your modified adjusted gross income exceeds certain thresholds, you may owe an additional 3.8% net investment income tax on top of your regular federal and state taxes. This tax applies to the lesser of your net investment income or the amount your income exceeds the threshold. For 2024, the thresholds are $200,000 for single filers, $250,000 for married couples filing jointly, and $125,000 for married couples filing separately.

Net investment income includes capital gains, dividends, interest, and rental income. This tax was introduced as part of the Affordable Care Act and applies to higher-income households. It is separate from your regular income tax and is reported on Form 8960.

How to calculate what you owe on a specific sale

To find your federal capital gains tax on a specific sale, first determine whether the gain is long-term or short-term based on your holding period. Then add the gain to your other taxable income for the year and find which tax bracket it falls into. If it is long-term, use the long-term rates (0%, 15%, or 20%); if it is short-term, use your ordinary income bracket (10% to 37%).

Next, check whether you owe the 3.8% net investment income tax by comparing your modified adjusted gross income to the threshold for your filing status. Finally, determine your state's tax on the gain by checking your state's capital gains tax rules — most states will tax it as ordinary income, but some have separate capital gains taxes with their own rates and thresholds. Your total tax is the sum of federal, state, and net investment income tax.

How holding period affects your tax bill

The difference between short-term and long-term treatment can be substantial. Suppose you are a single filer with $100,000 in taxable income and you sell an asset for a $50,000 gain. If you held it for more than one year, the gain is taxed at 15% (assuming it stays within the 15% bracket), costing you $7,500 in federal tax. If you held it for one year or less, the same $50,000 gain is taxed as ordinary income at 22% (the bracket your total income falls into), costing you $11,000 — a difference of $3,500.

This is why the one-year holding period matters so much. Waiting just a few weeks or months to cross the one-year threshold can move your gain from ordinary income rates to preferential long-term rates, potentially saving thousands in federal tax alone.

Frequently Asked Questions

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

No, you do not owe tax on a loss. Instead, you can use the loss to offset capital gains from other sales in the same year. If your losses exceed your gains, you can deduct up to $3,000 of the net loss against ordinary income (like wages). Any remaining loss carries forward to future years.

What if I inherit an asset — do I owe capital gains tax when I sell it?

Inherited assets receive a "step-up in basis," meaning your cost basis is reset to the asset's value on the date of death. If you sell shortly after inheriting, you typically owe little or no capital gains tax because the gain is the difference between the stepped-up basis and the sale price. This applies to most inherited assets, though there are exceptions for certain retirement accounts and property in community property states.

Are dividends taxed the same way as capital gains?

may have access to dividends are taxed at the same preferential rates as long-term capital gains (0%, 15%, or 20%), but non-may have access to dividends are taxed as ordinary income. To may have access to, you must have held the stock for at least 60 days around the dividend payment date. Unqualified dividends and dividends from certain investments (like bonds) are taxed as ordinary income at your regular bracket rate.

Can I reduce my capital gains tax by timing when I sell?

Yes, timing can affect your tax bracket and therefore your rate. Selling in a year when your other income is lower may keep you in a lower tax bracket. You can also harvest losses in one year to offset gains in another. However, the "wash sale" rule prevents you from claiming a loss if you buy the same or substantially identical security within 30 days before or after the sale.