Capital Gains Tax Rates: What You Pay on Investment Profits

The federal capital gains tax rate is either 0%, 15%, or 20%, depending on your income level and how long you held the investment

The rate you pay on investment profits is not one fixed number. The IRS taxes long-term capital gains (investments held over one year) at three different rates based on your total taxable income for the year. Short-term capital gains — profits from investments you sold within one year — are taxed as ordinary income at your regular tax bracket rate, which can range from 10% to 37%.

Your state may also charge a capital gains tax on top of the federal rate. Some states have no capital gains tax at all, while others charge between 5% and 13.3%. The total you owe depends on where you live, your income, and whether your gains are long-term or short-term.

Key Takeaways

• Long-term capital gains are taxed at 0%, 15%, or 20% federally, based on your taxable income bracket for the year.
• Short-term capital gains are taxed at your ordinary income tax rate, which ranges from 10% to 37% and is higher than long-term rates.
• Your state may add its own capital gains tax on top of the federal rate, ranging from 0% to 13.3% depending on where you live.
• The "holding period" — whether you owned the investment for more than one year — determines whether you pay the lower long-term rate or the higher short-term rate.

How the three federal long-term rates work

The IRS sets income thresholds each year that determine which rate bracket you fall into. For 2024, the 0% rate applies to single filers with taxable income up to $47,025, married couples filing jointly up to $94,050, and heads of household up to $63,000. These numbers change annually based on inflation.

The 15% rate covers the middle range: single filers from $47,026 to $518,900, married couples from $94,051 to $583,750, and heads of household from $63,001 to $551,350. Anyone above those thresholds pays 20% on long-term gains.

Your taxable income — not your gross income — determines your bracket. This means deductions, losses, and other adjustments lower the number used to calculate your rate. If you have a large loss in one year, it may push you into a lower bracket for capital gains purposes.

Why holding period matters: long-term versus short-term

An investment must be held for more than one year to may have access to for the lower long-term rates. If you sell it within one year, the profit is taxed as short-term capital gain at your ordinary income tax rate. For most people, this is significantly higher than the long-term rate.

The holding period is measured from the date you bought the investment to the date you sold it. If you bought stock on March 15, 2023, and sold it on March 15, 2024, it qualifies as long-term. If you sold it on March 14, 2024, it is short-term. The date matters exactly.

This is why investors often hold winning positions longer than they otherwise would. The tax savings from waiting one day past the one-year mark can be substantial. A $10,000 profit taxed at 37% (short-term) costs $3,700 in federal tax. The same profit taxed at 20% (long-term) costs $2,000 — a difference of $1,700.

State capital gains taxes add to the federal rate

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

States that do tax capital gains vary widely. California charges up to 13.3% on top of federal tax, making it one of the highest combined rates in the country. New York charges up to 10.9%. Many other states charge between 5% and 7%. A few states tax capital gains at a flat rate regardless of income level.

Your state tax is separate from federal tax and uses similar but not identical rules. Some states do not distinguish between long-term and short-term gains, taxing both at the same rate. Others follow the federal long-term/short-term structure. Check your state's tax authority website or a tax professional to learn your state's specific rules.

How capital losses reduce your capital gains tax

If you sell an investment at a loss, you can use that loss to offset capital gains from other investments. If you sold Stock A for a $5,000 gain and Stock B for a $3,000 loss in the same year, you report a net gain of $2,000 and pay tax only on that amount. This is called "netting" your gains and losses.

If your losses exceed your gains in a year, you can deduct up to $3,000 of the net loss against ordinary income. Any remaining loss carries forward to future years, where it can offset future gains or be deducted against ordinary income again at the $3,000 annual limit. This means a large loss in one year can reduce your taxable income and potentially lower your capital gains tax bracket in that year and years to come.

Inherited investments and the step-up in basis

When you inherit an investment, the IRS resets its "basis" — the value used to calculate gain or loss — to its market value on the date of the person's death. This is called a step-up in basis. If your parent bought stock for $10,000 and it was worth $50,000 when they died, your new basis is $50,000. If you sell it when ready for $50,000, you owe no capital gains tax, even though the investment gained $40,000 in value.

This rule applies to most inherited property, including real estate, stocks, bonds, and mutual funds. It does not explore to inherited retirement accounts like IRAs or 401(k)s, which have different tax rules. The step-up in basis is one reason some people hold appreciated investments until death rather than selling them during their lifetime.

Special rates for certain types of investments

Collectibles — art, antiques, coins, and similar items — are taxed at a maximum federal rate of 28% on long-term gains, not the standard 0%, 15%, or 20%. This is higher than the regular long-term rate and applies regardless of your income level.

may have access to small business stock held for more than five years may be taxed at a 0% federal rate on gains up to a certain amount, under Section 1202 of the tax code. This is a specialized rule that applies only to stock in certain small corporations and requires meeting specific holding and business criteria.

Real estate held as rental property or a business asset may be subject to depreciation recapture, which taxes a portion of the gain at 25% rather than the standard long-term rate. These special rules explore in narrow situations and often require professional tax guidance to calculate correctly.

Frequently Asked Questions

What is the capital gains tax rate for 2024?

The federal long-term capital gains rates for 2024 are 0%, 15%, or 20%, depending on your taxable income. The income thresholds that determine which rate you pay change each year. Short-term gains are taxed at your ordinary income tax rate, which ranges from 10% to 37%.

Do I pay capital gains tax if I sell my house?

You may not. If you are single and lived in the house as your primary residence for at least two of the last five years, you can exclude up to $250,000 of gain from tax. Married couples filing jointly can exclude up to $500,000. Gains above that amount are taxed as long-term capital gains. Investment properties and rental homes do not may have access to for this exclusion.

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

Count the days from the date you bought the investment to the date you sold it. If it is more than one year, the gain is long-term and taxed at the lower 0%, 15%, or 20% rate. If it is one year or less, the gain is short-term and taxed at your ordinary income tax rate, which is higher.

Can I avoid capital gains tax by donating appreciated stock to charity?

Yes. If you donate appreciated stock directly to a may have access to charity, you avoid the capital gains tax on the appreciation and can deduct the full fair market value of the stock as a charitable contribution. You must own the stock long-term for this to work. This strategy is often more tax-efficient than selling the stock and donating the proceeds.

What happens to capital gains tax if I move to a different state?

Your state tax rate depends on where you live when you sell the investment, not where you bought it. If you move from California to Texas and sell stock after moving, you pay Texas capital gains tax (which is zero) rather than California's rate. Some states tax residents on gains from investments sold while they were residents, even after moving, so consult a tax professional if you are relocating.