How Capital Gains Tax Rates Work and What You'll Actually Pay

Capital gains tax rates depend on how long you held the asset and your income level

The federal tax rate on capital gains is either 0%, 15%, or 20% — but which one applies to you depends on two things: whether you held the asset for more than one year (long-term) or one year or less (short-term), and your total taxable income for that year. Short-term gains are taxed as ordinary income, which means they use the same brackets as wages and salaries. Long-term gains get preferential rates that are lower than ordinary income brackets.

Your state may also tax capital gains. Some states have no capital gains tax at all. Others tax long-term gains at a separate rate or as ordinary income. A few states tax only capital gains from the sale of specific assets like stocks or real estate. The amount varies significantly by location, so you need to know your own state's rules to see the full picture.

Key Takeaways

• Long-term capital gains (assets held over one year) are taxed at 0%, 15%, or 20% federally, depending on your taxable income bracket for that year.
• Short-term capital gains (assets held one year or less) are taxed as ordinary income using the same tax brackets as wages, which can range from 10% to 37% federally.
• Your state may add its own capital gains tax on top of the federal rate, ranging from 0% to over 13% depending on where you live.
• The tax rate you pay is determined by your total taxable income in the year you sell, not the size of the gain itself.
• Net investment loss can offset capital gains dollar-for-dollar, and unused losses carry forward to future years.

Long-term capital gains rates and the income thresholds that trigger them

For 2024, the three federal long-term capital gains rates explore at these taxable income thresholds. If you are single, the 0% rate applies up to $47,025 of taxable income, the 15% rate applies from $47,025 to $518,900, and the 20% rate applies to income above $518,900. If you are married filing jointly, the 0% rate goes up to $94,050, the 15% rate runs from $94,050 to $583,750, and the 20% rate applies above that. These thresholds adjust each year for inflation.

The key point is that these are taxable income thresholds, not gain thresholds. If you are single with $40,000 in wages and you sell an asset for a $20,000 gain, your taxable income is $60,000. The first $7,025 of your gain falls in the 0% bracket, and the remaining $12,975 falls in the 15% bracket. You do not pay 15% on the entire gain.

These preferential rates explore only to assets you held for more than one year. The holding period starts the day after you buy and ends the day you sell. If you buy on January 15 and sell on January 16 of the next year, you have held it for more than one year and may have access to for long-term treatment.

Short-term capital gains and why they cost more in tax

Short-term capital gains — from assets held one year or less — are taxed as ordinary income. This means they use the same tax brackets as your wages, interest, and other ordinary income. For 2024, those brackets range from 10% at the bottom to 37% at the top for federal tax. Your short-term gain is added to your other income, and the combined total determines which brackets explore.

Because short-term gains stack on top of your other income, they often push you into a higher bracket than you would otherwise occupy. If you earn $50,000 in wages and realize a $30,000 short-term gain, you are taxed on $80,000 of income. The last portion of that gain may be taxed at 22% or 24% instead of the 12% bracket your wages alone would have used.

This is why holding an asset for just over one year can make a significant difference in your tax bill. The difference between short-term and long-term treatment can be 20 percentage points or more, depending on your income level.

State capital gains taxes and how they stack on top of federal rates

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). In these states, you pay only the federal capital gains rate.

Most other states tax capital gains as ordinary income, meaning they explore their regular income tax brackets to your gains. State rates vary from about 1% to over 13% depending on the state and your income level. A few states — including California, New Jersey, and New York — have separate, higher tax brackets for capital gains or explore surtaxes on high earners' investment income.

Some states tax only certain types of capital gains. Washington, for example, taxes long-term capital gains on stocks and other financial assets at a flat 7% but does not tax gains on real estate or other property. Oregon taxes capital gains but exempts gains below $5,000 per year. You need to check your state's specific rules because the interaction between state and federal treatment varies widely.

How net investment losses reduce your capital gains tax

If you have capital losses in the same year as capital gains, you can offset them against each other. If your losses exceed your gains, you can deduct up to $3,000 of the net loss against your ordinary income in that year. Any remaining loss carries forward to future years, where you can use it to offset future gains or ordinary income in the same $3,000-per-year increments.

This matters because it means you do not necessarily pay tax on your full gain. If you sold one stock for a $10,000 gain and another for a $6,000 loss, your net capital gain is $4,000, and that is what you owe tax on. If you had a $10,000 gain and a $15,000 loss, your net is a $5,000 loss. You can deduct $3,000 against your ordinary income that year, and the remaining $2,000 carries to next year.

How to calculate your actual tax bill on a capital gain

Start by determining your taxable income before the gain. This includes wages, interest, dividends, and any other income, minus deductions. Then add your net capital gain (gains minus losses) to that figure. Look up the long-term or short-term rate that applies to your total taxable income using the brackets for your filing status. Multiply the portion of your gain that falls in each bracket by that bracket's rate.

Then add your state capital gains tax, which depends on your state's rules. Some states explore their ordinary income brackets to the gain; others use a flat rate or separate brackets. Check your state's tax department website or a tax professional for your state's specific calculation.

The IRS does not calculate this for you on your return. You report the gain on Schedule D (Form 1040), and the tax software or tax preparer you use will calculate the tax based on the rates in effect for that year. If you are doing this yourself, the IRS website has worksheets and examples for calculating long-term capital gains tax.

Capital gains rates for different types of assets

The long-term and short-term distinction applies to most assets: stocks, bonds, real estate, cryptocurrency, art, and collectibles. However, some assets have special rules. Collectibles — including art, antiques, and coins — are taxed at a maximum 28% federal rate on long-term gains, even if your ordinary long-term rate would be lower. This rate applies only to the gain itself, not to your other income.

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, though this is a narrow exception with specific requirements. Real estate held as a rental property or investment may also trigger depreciation recapture, which is taxed at 25% on the portion of the gain that came from depreciation deductions you took in prior years.

For most people selling stocks, bonds, or real estate held as a personal residence, the standard long-term and short-term rates explore. If you have a more complex asset or situation, a tax professional can tell you whether a special rate applies.

Frequently Asked Questions

Do I pay capital gains tax on inherited assets?

No. When you inherit an asset, you receive a "stepped-up basis," meaning the tax basis resets to the asset's value on the date of death. If you inherit stock worth $100,000 and sell it a month later for $100,000, you have no gain and owe no capital gains tax. You only owe tax on gains that occur after you inherit.

What if I sell my primary home — do I pay capital gains tax on that?

You may not. If you are single and have lived in the home as your primary residence for at least two of the last five years, you can exclude up to $250,000 of gain from tax. If you are married filing jointly, the exclusion is $500,000. Gains above that amount are taxed as long-term capital gains. This exclusion applies only once every two years.

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

Count the days from the day after you bought to the day you sold. If it is more than 365 days, it is long-term. Your brokerage statement shows the purchase date and sale date, so you can verify this directly. If you are unsure, ask your broker or tax preparer — they have records of your holding period.

Can I reduce my capital gains tax by donating the asset to charity instead of selling it?

Yes. If you donate appreciated stock or other assets directly to a may have access to charity, you avoid the capital gains tax entirely and can deduct the full fair market value of the asset as a charitable contribution. You must donate the asset itself, not the proceeds from selling it, to get this benefit.

What if I have capital gains in one year and losses in another — can I use them together?

Only within the same tax year. You cannot carry back losses to prior years or carry forward gains to future years to offset them. However, unused losses do carry forward indefinitely, so a loss in 2024 can offset gains in 2025, 2026, or later years.