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

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 asset for more than one year (long-term) or one year or less (short-term), and your total taxable income for the year. Long-term capital gains get lower rates than short-term gains. Short-term gains are taxed as ordinary income, which means they use the same brackets as wages — 10%, 12%, 22%, 24%, 32%, 35%, or 37% depending on your income.

Most people pay either 15% or 0% on long-term gains. You pay 0% if your income is low enough to fall in the 10% or 12% ordinary income bracket. You pay 15% if you're in the 22% bracket or higher, up to a certain income threshold. You pay 20% only if your income exceeds that threshold — in 2024, that's roughly $492,300 for single filers and $553,850 for married filing jointly, though these numbers change each year.

Your state may also tax capital gains. Some states have no capital gains tax at all. Others tax them as regular income. A few states have a separate capital gains tax. The rate varies by state and is added on top of the federal rate.

Key Takeaways

• Long-term capital gains (assets held over one year) are taxed at 0%, 15%, or 20% federally, based on your income level.
• Short-term capital gains (assets held one year or less) are taxed as ordinary income at rates from 10% to 37%.
• The income thresholds for each rate change every year and depend on your filing status (single, married, head of household).
• Your state may add its own capital gains tax on top of the federal rate, or may have no capital gains tax at all.

Long-term vs. short-term capital gains rates

The holding period matters because long-term gains get preferential tax treatment. If you sell an asset you've owned for more than one year, you pay the long-term rate. If you sell it within one year, you pay short-term rates — which are the same as your ordinary income tax bracket.

Short-term gains can be expensive. If you're in the 24% tax bracket and sell a stock you held for six months at a $5,000 gain, you owe $1,200 in federal tax on that gain alone. If you'd held it for 13 months instead, you'd owe either $0, $750, or $1,000 depending on your total income — much less in most cases.

The one-year clock starts the day after you buy the asset. If you buy on January 15, 2024, the one-year mark is January 16, 2025. Selling on January 16 or later qualifies for long-term rates.

How income level determines your long-term rate

Your long-term capital gains rate depends on which ordinary income bracket you fall into, not on the size of the gain itself. The brackets are:

Tax Bracket	Long-Term Capital Gains Rate	Single Filer Income (2024)	Married Filing Jointly (2024)
10% or 12%	0%	Up to $47,025	Up to $94,050
22% to 35%	15%	$47,025 to $518,900	$94,050 to $583,750
37%	20%	Over $518,900	Over $583,750

These thresholds change each year. The IRS adjusts them for inflation, so the income ranges are higher in 2025 than they were in 2024. When you file your taxes, use the thresholds for the year you sold the asset.

Your taxable income includes wages, interest, dividends, and capital gains all added together. If you earn $60,000 in wages and have a $10,000 long-term capital gain, your taxable income is $70,000. You'd look up the rate based on that $70,000 total, not just the gain.

State 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 interest and dividends, not wages or gains). If you live in one of these states, you pay only the federal rate.

Most other states tax capital gains as ordinary income, meaning they use the same rate they explore to wages. A few states have a separate capital gains tax. California, for example, taxes long-term gains at the same rate as ordinary income — up to 13.3% depending on your income. Washington state has a 7% capital gains tax on long-term gains over $250,000.

If you're considering moving to take advantage of a state's tax treatment, remember that the state where you lived when you sold the asset is usually the one that taxes you, not where you live now. The rules vary by state, so check your state's tax authority website if you're selling a large asset.

How to calculate what you owe

Start by finding your gain or loss: the sale price minus what you paid for the asset (your cost basis), minus any selling costs like broker fees. If you bought 100 shares at $50 each and sold them at $75 each, your gain is $2,500 before costs.

Next, determine whether it's long-term or short-term based on the holding period. Then add it to your other income for the year to find your total taxable income. Look up the capital gains rate that applies to your bracket and filing status. Multiply the gain by that rate to find your federal tax.

Add your state's capital gains tax if your state has one. The total is what you owe on that gain. Your broker or tax software will usually calculate this for you when you report the sale on your tax return.

What happens if you have losses

Capital losses can reduce the tax you owe. If you sell an asset at a loss, you can use that loss to offset capital gains from other sales. 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.

This is why some people sell losing positions late in the year — to offset gains they made earlier and reduce their tax bill. The strategy is called tax-loss harvesting. You can't buy back the same security within 30 days before or after the sale, or the loss is disallowed under the wash-sale rule.

Frequently Asked Questions

Do I owe capital gains tax if I haven't sold yet?

No. You owe tax only when you sell and realize the gain. If a stock you own has doubled in value but you haven't sold it, you owe nothing. The tax is due in the year you sell, when you file your tax return for that year.

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

Usually no. Inherited assets receive a "step-up in basis," meaning your cost basis is the asset's value on the date of death, not what the person who left it to you originally paid. If you inherit a house worth $500,000 and sell it a month later for $500,000, you have no gain and owe no tax.

Are dividends taxed the same 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. Your brokerage statement will tell you which type you received. Most dividends from U.S. stocks are may have access to if you held the stock long enough.

Can I avoid capital gains tax by donating the asset to charity?

Yes. If you donate an appreciated asset directly to a may have access to charity, you avoid the capital gains tax entirely and can deduct the full fair market value as a charitable contribution. You must own the asset long-term for this to work. This is often better than selling and donating the proceeds.