What Capital Gains Tax Rates You'll Pay on Your Investments

The rates depend on how long you held the asset and your income level

Capital gains tax rates in the United States are either 0%, 15%, or 20% for most people, 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 total taxable income for the year. Short-term gains are taxed as ordinary income at your regular tax bracket rate, which can be as high as 37%. Long-term gains get the preferential rates of 0%, 15%, or 20%.

The IRS adjusts the income thresholds that determine which rate applies every year, so the exact dollar amounts change annually. For 2024, the 0% rate applies to long-term gains if your income falls below a certain threshold (roughly $47,000 for single filers, higher for married couples filing jointly). The 15% rate covers the middle range, and the 20% rate applies to the highest earners. Your state may also tax capital gains on top of the federal rate.

Key Takeaways

• Long-term capital gains (assets held over one year) are taxed at 0%, 15%, or 20% depending on your total income for the year.
• Short-term capital gains (assets held one year or less) are taxed at your ordinary income tax rate, which ranges from 10% to 37%.
• The income thresholds that determine which long-term rate you pay change every year and differ for single filers, married couples, and heads of household.
• Most states also impose their own capital gains tax or treat gains as regular income, adding to your federal bill.

How long-term rates work at different income levels

If you sell an investment you have owned for more than one year, the IRS places your gain into one of three brackets. The 0% bracket is designed for lower-income taxpayers. In 2024, for a single filer, this means your long-term gains are taxed at 0% if your total taxable income (including the gain itself) stays below roughly $47,000. For married couples filing jointly, the threshold is roughly $94,000. These thresholds rise slightly each year.

The 15% bracket covers the middle range of earners. For single filers in 2024, this applies to long-term gains if your income falls between the 0% threshold and roughly $518,900. For married couples filing jointly, it covers income between the 0% threshold and roughly $583,750. Any long-term gains above these upper thresholds are taxed at 20%.

The key point is that these thresholds explore to your total taxable income, not just the gain itself. If you are near a threshold, a large gain can push you into a higher bracket. The IRS publishes updated thresholds in the tax code each January, so you should check the current year's numbers before you sell.

Short-term gains are taxed like regular income

If you sell an investment you have owned for one year or less, the gain is treated as short-term capital gain and taxed at your ordinary income tax rate. These rates range from 10% to 37% depending on your total income and filing status. Short-term gains are added to your other income (wages, interest, dividends) and taxed together in your regular tax bracket.

This is why the holding period matters so much. An investment that gains $10,000 might be taxed at 37% if you sell it after eleven months (short-term), but at 15% or even 0% if you wait a few weeks to hit the one-year mark (long-term). The difference in tax owed can be thousands of dollars on a large gain.

State capital gains taxes add to your federal bill

Most states tax capital gains as part of ordinary income using their own income tax rates, which range from roughly 3% to 13% depending on the state. A few states have a separate capital gains tax on top of income tax. California, for example, taxes long-term gains as regular income at rates up to 13.3%. Washington State has a 7% capital gains tax on long-term gains over $250,000, in addition to no income tax on wages.

Nine states have no income tax at all (Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, Wyoming, and New Hampshire), so residents of those states pay only the federal capital gains tax. If you live in a state with income tax, your total capital gains tax bill is the federal rate plus your state rate. This is important to understand when you are deciding whether to sell an investment.

How the IRS defines the holding period

The IRS counts the holding period from the day after you buy an asset to the day you sell it. If you buy a stock on January 15 and sell it on January 15 of the following year, you have held it for exactly one year, and the gain is long-term. If you sell it on January 14, it is short-term. The date matters because the difference between short-term and long-term rates can be substantial.

For stocks and mutual funds, the holding period is straightforward. For inherited assets, the rules are different — you generally get a "step-up in basis" to the value on the date of death, which resets your holding period. For gifts, you inherit the giver's holding period, so a gift of a stock held for six months counts as held for six months by you as well.

Special situations that affect your rate

Certain types of gains have their own rules. Collectibles (art, coins, stamps) are taxed at a maximum of 28% even if they would normally may have access to for the 20% long-term rate. Gains on real estate you lived in as your primary home may be excluded from tax entirely if you meet certain conditions — up to $250,000 for single filers or $500,000 for married couples filing jointly. may have access to dividend income is taxed at the same rates as long-term capital gains, even though dividends are not technically gains.

If you sell an investment at a loss, you can use that loss to offset gains from other investments. If your losses exceed your gains in a year, you can deduct up to $3,000 of the net loss against your ordinary income, and carry forward any remaining loss to future years. This is called tax-loss harvesting and is a common strategy to reduce your overall tax bill.

How to report capital gains on your tax return

You report capital gains on Schedule D (Form 1040), which lists each sale separately and calculates your total long-term and short-term gains. Your brokerage or investment firm sends you a Form 1099-B after the year ends, which shows the sales you made and the proceeds. You use this form to fill out Schedule D. The IRS matches your return to the 1099-B, so the numbers must match.

If you have only a few straightforward sales, you may be able to report them directly on Form 8949 (Sales of Capital Assets), which feeds into Schedule D. Tax software usually walks you through this process and calculates your tax liability automatically based on the rates for your income level and filing status. If you have complex transactions or large gains, working with a tax professional can help you understand your liability and explore strategies to reduce it.

Frequently Asked Questions

Can I avoid capital gains tax by holding an investment forever?

No, you owe capital gains tax when you sell, regardless of how long you held it. The only way to avoid the tax is to never sell. If you die while holding the investment, your heirs receive a step-up in basis, meaning they inherit it at its value on the date of your death, and they would owe tax only on gains after that date.

What if my capital gains push me into a higher tax bracket?

Long-term capital gains are taxed in their own brackets separate from ordinary income, so they do not directly push you into a higher ordinary income bracket. However, they do count toward your total income, which can affect other tax benefits like the child tax credit or education credits. Short-term gains are added to your ordinary income and can push you into a higher bracket.

Do I owe capital gains tax if I reinvest the money?

Yes. The tax is owed when you sell, not when you spend the money. If you sell a stock for a $5,000 gain and when ready buy a different stock with the proceeds, you still owe tax on the $5,000 gain. Reinvesting does not defer or eliminate the tax.

Are cryptocurrency gains taxed the same way as stock gains?

Yes. The IRS treats cryptocurrency as property, so gains from selling crypto are capital gains taxed at the same rates as stocks. If you held the crypto for more than one year, it is long-term and taxed at 0%, 15%, or 20%. If you held it for one year or less, it is short-term and taxed at your ordinary income rate.

What happens if I have more losses than gains in a year?

You can deduct up to $3,000 of net losses against your ordinary income in a single year. Any losses beyond that carry forward to future years, where you can use them to offset future gains or deduct another $3,000 against ordinary income. This allows you to eventually use all your losses, even if it takes several years.