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

Capital gains tax is not one fixed percentage. The federal rate you pay ranges from 0% to 20%, determined by 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 bracket for that year.

Short-term capital gains are taxed as ordinary income, meaning they use the same tax brackets as wages or salary — 10%, 12%, 22%, 24%, 32%, 35%, or 37% depending on your total income. Long-term capital gains have their own lower brackets: 0%, 15%, or 20%. Most people pay 15% on long-term gains. The 0% rate applies only to lower-income filers; the 20% rate applies only to high-income filers.

States and some cities also tax capital gains, with rates varying widely. Some states have no capital gains tax at all. Others tax capital gains as regular income or explore a separate capital gains tax. You owe both federal and state tax on the same gain.

Key Takeaways

• Short-term capital gains (assets held one year or less) are taxed at your ordinary income tax rate, which ranges from 10% to 37% depending on your income.
• Long-term capital gains (assets held more than one year) are taxed at 0%, 15%, or 20% depending on your income, with 15% being the most common rate.
• Your total taxable income for the year determines which tax bracket you fall into, not just the capital gain itself.
• State and local taxes explore on top of federal capital gains tax, and the state rate depends on where you live and sometimes where you earned the gain.

How holding period changes your tax rate

The difference between short-term and long-term capital gains is one year. If you buy a stock on March 15, 2024, and sell it on March 16, 2025, it qualifies as long-term. If you sell it on March 15, 2025, it is still short-term. The IRS counts the day you buy as day one.

Short-term gains use your ordinary income tax brackets. If you are in the 24% tax bracket for wages, a short-term capital gain pushes into that same bracket and is taxed at 24%. Long-term gains do not use those brackets. Instead, they have their own three-tier system: 0%, 15%, or 20%. This separation means a long-term gain often costs less in tax than a short-term gain of the same size.

The holding period applies to each asset separately. You might have a long-term gain on one stock and a short-term gain on another, taxed at different rates in the same year.

Income thresholds for the 0%, 15%, and 20% long-term rates

The long-term capital gains brackets are tied to income thresholds that change each year. For 2024, the thresholds are:

Filing Status	0% Rate (up to)	15% Rate (up to)	20% Rate (above)
Single	$47,025	$518,900	$518,900
Married Filing Jointly	$94,050	$583,750	$583,750
Head of Household	$62,700	$551,350	$551,350

These are your taxable income thresholds, not your total income. Taxable income is what remains after you subtract deductions and exemptions. If you are single with $50,000 in wages and $10,000 in long-term capital gains, your taxable income is $60,000 (assuming standard deduction and no other adjustments). The first $47,025 of gains falls in the 0% bracket; the remaining $2,975 falls in the 15% bracket.

The thresholds increase slightly each year for inflation. The IRS publishes updated numbers in late October or early November for the following tax year.

State and local capital gains taxes

Nine states have no income tax at all: Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, Wyoming, and New Hampshire (which taxes only dividends and interest, not capital gains). The remaining 41 states and Washington, D.C., tax capital gains in some form.

Most states tax capital gains as ordinary income, meaning they explore their regular income tax rate to the gain. If your state income tax rate is 5%, you pay 5% on capital gains. A few states — California, Hawaii, Illinois, Iowa, Maine, Minnesota, Missouri, New Jersey, New Mexico, New York, Oregon, Rhode Island, Vermont, and Washington, D.C. — have separate capital gains taxes or higher rates on capital gains than on ordinary income.

Some cities also tax capital gains. New York City, for example, applies city income tax to capital gains. You owe both state and federal tax on the same gain, and sometimes city tax as well. The total can be substantial: a resident of New York City paying 20% federal long-term capital gains tax, 6.85% state tax, and 3.876% city tax owes roughly 30.7% combined.

How to calculate what you owe on a specific gain

Start by determining whether the gain is short-term or long-term. Calculate the gain by subtracting what you paid (your cost basis) from what you received when you sold. If you bought 100 shares at $50 per share ($5,000 total) and sold them at $75 per share ($7,500 total), your gain is $2,500.

Next, add the gain to your other income for the year to find your total taxable income. If you earned $60,000 in wages and have $2,500 in long-term gains, your taxable income is $62,500 (before deductions). Check the IRS tax tables or your tax software to see which federal bracket you fall into.

For long-term gains, use the long-term capital gains brackets to see how much of your gain is taxed at 0%, 15%, or 20%. For short-term gains, use your ordinary income tax bracket. Then add your state and local tax rates. Your tax software or a tax professional can do this calculation for you when you file.

Net capital loss and carryover rules

If you sell an investment at a loss, you can use that 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 (wages, salary, interest). Any loss beyond $3,000 carries forward to future years and can be used to offset gains or ordinary income in those years.

This rule applies whether your losses are short-term or long-term. A $5,000 long-term loss can offset a $5,000 short-term gain, or vice versa. If you have both types of losses and gains, the IRS applies them in a specific order: short-term gains and losses net first, then long-term gains and losses, then the two groups net against each other.

Frequently Asked Questions

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

No. A loss means you sold for less than you paid, so there is no gain to tax. You can use the loss to reduce taxes on other gains or up to $3,000 of ordinary income in that year. Losses beyond $3,000 roll forward to future years.

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

Inherited investments receive a "step-up in basis," meaning your cost basis resets to the market value on the date of death. If you inherit a stock worth $10,000 and sell it for $10,500 a year later, your gain is only $500, not the gain the deceased person would have owed. This is a major tax advantage of inherited assets.

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%), but non-may have access to dividends are taxed as ordinary income. Dividends from most U.S. stocks held for more than 60 days are may have access to. Dividends from bonds and money market funds are usually non-may have access to.

Can I avoid capital gains tax by not selling?

Yes. You owe capital gains tax only when you sell or dispose of an investment. If you hold an investment that has grown in value but never sell it, you owe no federal capital gains tax on the gain during your lifetime. However, your heirs will inherit it at stepped-up basis, and they will owe tax only on gains that occur after they inherit it.