What Tax Rate You Pay on Capital Gains

Your capital gains tax rate depends on how long you held the asset and your total income for the year

The IRS taxes capital gains — profit from selling stocks, real estate, or other investments — at different rates than ordinary income like wages. How much you pay depends on two things: whether you held the asset for more than one year (long-term) or one year or less (short-term), and which tax bracket your total income puts you in.

Short-term capital gains are taxed as ordinary income at your regular tax rate, which ranges from 10% to 37% depending on your income. Long-term capital gains have their own lower rates: 0%, 15%, or 20%, depending on your income level. Most people pay 15%. The rates do not change year to year, but the income thresholds that determine which rate applies do adjust annually for inflation.

Key Takeaways

• Short-term capital gains (assets held one year or less) are taxed at your ordinary income tax rate, which can be as high as 37%.
• 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 filing status and total taxable income determine which rate applies — not the size of the gain itself.
• The income thresholds for each rate change each year; the IRS publishes updated brackets in January.
• You report capital gains on Schedule D (Form 1040) and pay tax when you sell, not when you earn the gain.

Long-Term Capital Gains Rates and Income Thresholds

If you held an investment for more than one year before selling it, you may have access to for long-term capital gains rates. These rates are 0%, 15%, or 20%. Which one you pay depends on your taxable income and filing status.

For the 2024 tax year (filed in 2025), the 0% rate applies if your taxable income falls below a certain threshold. For single filers, that threshold is $47,025. For married filing jointly, it is $94,050. For head of household, it is $62,700. If your income is above these amounts but below the next threshold, you pay 15%. The 20% rate applies to the highest earners — those above $518,900 (single), $583,750 (married filing jointly), or $551,350 (head of household).

These thresholds change each year. The IRS publishes updated numbers in January on its website and in Publication 17. If you are close to a threshold, check the current year's numbers before you sell an asset, because timing the sale in a different tax year can change your rate.

Short-Term Capital Gains and Ordinary Income Tax Rates

If you held an investment for one year or less before selling, the gain is short-term. The IRS taxes it at your ordinary income tax rate — the same rate that applies to wages, self-employment income, and interest.

Ordinary income tax rates for 2024 are 10%, 12%, 22%, 24%, 32%, 35%, and 37%. Your rate depends on your total taxable income and filing status. A single filer in the 22% bracket, for example, pays 22% on short-term capital gains. This is why holding an asset for just over one year can save you money: the difference between your ordinary rate (possibly 37%) and the long-term rate (possibly 15%) can be substantial.

How to Calculate Your Capital Gains Tax

Start by finding your total taxable income for the year — wages, self-employment income, interest, dividends, and other sources combined. Then determine whether your capital gains are long-term or short-term. Long-term gains are stacked on top of your other income, and the rate depends on where that combined total falls. Short-term gains are added to your ordinary income and taxed at your ordinary rate.

You do not calculate this yourself on your tax return. You report the details on Schedule D (Form 1040), and your tax software or preparer uses your total income to determine the rate. But understanding the calculation helps you see why holding an asset longer can reduce your tax bill.

Example: You are single with $60,000 in wages. You sell a stock for a $10,000 long-term gain. Your taxable income is now $70,000. For 2024, the 15% long-term rate applies to single filers with income between $47,025 and $518,900, so you pay 15% on the $10,000 gain — $1,500 in tax. If you had sold the stock within one year (short-term), you would pay your ordinary rate on the $10,000, which at your income level is 12% — $1,200. The difference is small in this case, but it grows with larger gains.

Net Capital Loss and Carryover Rules

If you sell an asset for less than you paid, you have a capital loss. You can use capital losses to offset capital gains dollar-for-dollar. If your losses exceed your gains in a year, you can deduct up to $3,000 of the net loss against ordinary income (wages, salary, and so on).

If your losses are larger than $3,000, you cannot deduct the rest that year. Instead, you carry the unused loss forward to future years and use it to offset future gains or ordinary income. There is no time limit on carryovers — you can use them in any future year. This is why some investors track losses carefully: a large loss in one year can reduce taxes in multiple years ahead.

State and Local Capital Gains Taxes

Federal capital gains tax is only part of the picture. Most states tax capital gains as ordinary income, meaning you pay your state income tax rate on top of the federal rate. A few states — including Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming — do not have a state income tax at all.

A small number of states have introduced separate capital gains taxes. Washington State, for example, taxes long-term capital gains on certain assets at 7%. New York has a proposed capital gains tax. These state taxes are separate from federal tax and are calculated on your state return. If you live in a high-income-tax state and sell a large asset, the combined federal and state rate can be significant.

Special Situations: Collectibles and Section 1250 Property

Most long-term capital gains may have access to for the 0%, 15%, or 20% rates. But certain assets have different rules. Collectibles — art, coins, stamps, and similar items — are taxed at a maximum long-term rate of 28%, even if you would normally pay 15% or 20%. Gains from selling real property (real estate) that you depreciated for business or rental purposes may be subject to a 25% rate on the depreciation recapture portion.

These rules are less common for typical investors, but they matter if you sell a rental property or have collectible investments. Your tax preparer or the instructions to Schedule D will flag these situations.

Frequently Asked Questions

Do I pay capital gains tax if I do not sell the investment?

No. The IRS taxes capital gains only when you sell and realize the gain. If you own a stock that doubled in value but you do not sell it, you owe no tax on the unrealized gain. You pay tax in the year you sell.

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

No, and this is a major tax benefit. When you inherit an asset, its value is "stepped up" to the fair market value on the date of death. If you then sell it shortly after, you owe little or no capital gains tax on the gain that occurred before you inherited it. You only pay tax on gains that happen after you inherit.

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

Yes, sometimes. If you are close to a long-term capital gains rate threshold, selling in a different tax year can change your rate. You can also use capital losses to offset gains. But the IRS has rules against "wash sales" — selling a stock at a loss and buying it back within 30 days to claim the loss without actually changing your position. Consult a tax preparer before executing a timing strategy.

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. Your brokerage statement tells you which type you received. Most dividends from U.S. corporations are may have access to if you held the stock long enough.

Do I report capital gains differently if I use a tax preparer?

You provide your preparer with the sale details — purchase price, sale price, date bought, date sold — and they enter them on Schedule D. The software calculates your rate based on your total income. You do not need to calculate the rate yourself, but understanding how it works helps you make decisions about when to sell.