Capital Gains Tax Rates: What You Pay on Investment Profits

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

The federal tax rate on capital gains ranges from 0% to 20%, depending on two things: whether you held the investment for more than one year (long-term) or one year or less (short-term), and your taxable income for the year. Long-term capital gains receive preferential rates. Short-term capital gains are taxed as ordinary income, which means they use the same tax brackets as wages and salaries — currently 10%, 12%, 22%, 24%, 32%, 35%, or 37%.

Most people pay either 15% or 20% on long-term gains. A smaller group pays 0%. The income thresholds that determine which rate applies change each year and differ based on your filing status (single, married filing jointly, head of household, or married filing separately).

Key Takeaways

• Long-term capital gains (held over one year) are taxed at 0%, 15%, or 20% depending on your total taxable income for the year.
• Short-term capital gains (held one year or less) are taxed at your ordinary income tax rate, which can be as high as 37%.
• The income thresholds that determine your capital gains rate change annually and vary by filing status.
• State and local taxes may add additional tax on top of the federal rate, and some high-income earners pay a 3.8% net investment income tax.

Long-Term Capital Gains Tax Brackets for 2024

For 2024, the 0% long-term capital gains 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 $62,975. These thresholds are adjusted each year for inflation.

The 15% rate applies to income above those thresholds up to $518,900 for single filers, $583,750 for married filing jointly, and $551,350 for heads of household. Income above those amounts is taxed at 20%.

These brackets explore only to long-term gains — investments you held for more than one year. If you sell an investment you owned for one year or less, the gain is taxed as ordinary income instead, using the regular income tax brackets.

Short-Term Capital Gains and Ordinary Income Tax Rates

Short-term capital gains are added to your other income and taxed at your marginal tax rate. For 2024, those rates are 10%, 12%, 22%, 24%, 32%, 35%, and 37%, depending on your total income and filing status. A short-term gain of $10,000 could push you into a higher bracket and increase the tax on all your income in that bracket.

Because short-term gains use ordinary income brackets, they are typically taxed at a much higher rate than long-term gains. Someone in the 24% bracket would pay 24% on a short-term gain but only 15% on a long-term gain from the same investment.

State and Local Capital Gains Taxes

Most states tax capital gains as part of ordinary income, so your state income tax rate applies on top of the federal rate. A few states — including California, New York, and Oregon — have income tax rates above 10%, which means your total capital gains tax (state plus federal) can exceed 30% on long-term gains.

A small number of states have no income tax at all, including Florida, Texas, and Washington. Others tax capital gains at a lower rate than ordinary income or only on certain types of gains. Your state's rate depends on where you live when you sell the investment, not where you bought it.

The Net Investment Income Tax on High Earners

Individuals with modified adjusted gross income above $200,000 (or $250,000 for married couples filing jointly) pay an additional 3.8% tax on net investment income, which includes capital gains. This tax was created as part of the Affordable Care Act and applies in addition to regular income tax and capital gains tax.

For a high-income earner, this means a long-term capital gain could be taxed at 20% (federal) plus 3.8% (net investment income tax) plus state tax, totaling well over 30% depending on the state.

How Holding Period Affects Your Tax Rate

The difference between holding an investment for one year versus one year and one day can be substantial. A gain on an investment held for exactly 365 days is taxed as short-term income at your ordinary rate. The same gain on an investment held for 366 days qualifies for long-term rates, potentially cutting your tax bill in half.

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

Capital Losses and Tax Offsets

Capital losses can offset capital gains dollar-for-dollar. If you sold one investment for a $5,000 gain and another for a $3,000 loss in the same year, you would report a net gain of $2,000 and pay tax only on that amount. Losses are matched against gains in a specific order: short-term losses offset short-term gains first, and long-term losses offset long-term gains first.

If your losses exceed your gains in a year, you can deduct up to $3,000 of the excess loss against ordinary income. Any remaining loss carries forward to future years and can be used to offset future gains or ordinary income.

Frequently Asked Questions

Do I pay capital gains tax on investments I still own?

No. Capital gains tax is due only when you sell the investment and realize the gain. Unrealized gains — the increase in value of investments you still own — are not taxed. You can hold an investment indefinitely without owing tax on the appreciation.

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

Inherited investments receive a "step-up in basis," meaning the tax basis is reset to the fair market value on the date of death. If you inherit stock worth $100,000 that the deceased person bought for $20,000, your basis is $100,000. If you sell it when ready for $100,000, you owe no capital gains tax. You would owe tax only on gains that occur after you inherit it.

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

Yes, by controlling which year you realize the gain and by offsetting gains with losses. Selling an investment in a year when your income is lower may result in a lower capital gains rate. Harvesting losses — selling losing investments to offset gains — can reduce or eliminate your capital gains tax in a given year.

Are dividends taxed the same way as capital gains?

may have access to dividends are taxed at the same long-term capital gains rates (0%, 15%, or 20%). Non-may have access to dividends are taxed as ordinary income. Most dividends from U.S. corporations and certain foreign corporations are may have access to if you held the stock for at least 60 days around the dividend payment date.

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

Your capital gains are taxed by the state where you live when you sell the investment. If you sell stock while living in California and then move to Florida, you owe California tax on that gain. If you move to Florida first and then sell, you owe no state tax. The timing of the sale relative to your move determines which state taxes the gain.