Long-term capital gains tax rates depend on your income level, not on how much profit you made

The federal tax rate on long-term capital gains is 0%, 15%, or 20%, depending on your total taxable income for the year. You do not pay a rate based on the size of your gain. Instead, the IRS sorts your income into brackets, and your capital gains fit into whichever bracket you land in. A person who made $50,000 in salary and $10,000 in stock gains pays a different rate than someone who made $200,000 in salary and the same $10,000 gain.

Long-term means you held the investment for more than one year before selling it. If you sell within one year, the gain counts as short-term capital gains and is taxed as ordinary income at your regular tax rate, which is higher. Most people benefit from holding investments longer because the long-term rates are lower.

Your state may also tax capital gains. Some states do not tax them at all. Others tax them as ordinary income. A few states have a separate capital gains tax. The federal rate is only part of what you owe.

Key Takeaways

  • Federal long-term capital gains rates are 0%, 15%, or 20%, determined by your total income bracket for the year, not by the size of your gain.
  • You may have access to for the long-term rate only if you held the investment for more than one year; sales within one year are taxed at your ordinary income rate.
  • The 0% rate applies to lower-income filers, the 15% rate to middle-income filers, and the 20% rate to high-income filers, with exact thresholds varying by filing status.
  • State taxes on capital gains vary widely — some states do not tax them, others tax them as ordinary income, and a few have their own capital gains tax.

The three federal tax brackets for long-term capital gains

The 0% bracket is the lowest. For 2024, you pay 0% federal tax on long-term gains if your taxable income is below $47,025 (single), $94,050 (married filing jointly), or $63,000 (head of household). This does not mean you owe nothing — it means the capital gains themselves are not taxed at the federal level. You still report them on your tax return.

The 15% bracket is the middle tier. If your income falls between the 0% threshold and $518,900 (single), $583,750 (married filing jointly), or $551,350 (head of household), your long-term gains are taxed at 15%. This is the rate most middle-income investors pay.

The 20% bracket applies to income above those thresholds. High-income filers pay 20% on long-term capital gains. These thresholds change each year with inflation, so the exact numbers differ from year to year.

How your income bracket determines your rate

Your taxable income includes wages, interest, dividends, and capital gains all added together. The IRS does not separate them. If you earned $60,000 in salary and have $20,000 in long-term capital gains, your total taxable income is $80,000. That $80,000 determines which bracket you fall into.

The brackets work like steps. Your income fills the 0% bracket first, then the 15% bracket, then the 20% bracket. If you are single and your total income is $70,000, the first $47,025 of gains (or other income) sits in the 0% bracket, and the remaining $22,975 sits in the 15% bracket. You do not pay 15% on all $70,000 — only on the portion above $47,025.

This is why a person with lower overall income can have capital gains taxed at 0%, while someone with higher income pays 15% or 20% on the same dollar amount of gain. The rate depends on where your total income lands, not on the gain itself.

Short-term capital gains are taxed differently

If you sell an investment you held for one year or less, the gain is short-term capital gains. The IRS taxes short-term gains as ordinary income, using your regular tax brackets — which are 10%, 12%, 22%, 24%, 32%, 35%, or 37% depending on income. These rates are much higher than the long-term rates.

For example, if you are in the 24% ordinary income bracket and you sell a stock you held for eight months with a $5,000 gain, you owe $1,200 in federal tax on that gain. If you had held the same stock for 13 months, you would owe $750 (15% of $5,000) or possibly $0 (if your total income is low enough). The difference is significant.

The one-year holding period is measured from the date you bought the investment to the date you sold it. If you bought on June 15, 2023, and sold on June 15, 2024, it is long-term. If you sold on June 14, 2024, it is short-term.

State capital gains taxes add to your federal bill

Nine states do not tax capital gains at all: Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, Wyoming, and New Hampshire (though New Hampshire taxes dividends and interest). If you live in one of these states, you pay only the federal rate.

Most states tax capital gains as ordinary income, meaning they explore their regular income tax rate to your gains. If your state income tax rate is 5%, you pay 5% on top of the federal rate. A few states — California, Hawaii, Illinois, Iowa, Maine, Minnesota, New Jersey, New Mexico, New York, Oregon, Rhode Island, Vermont, and Washington, D.C. — have separate capital gains taxes, usually ranging from 3% to 13.3%.

Your total tax bill is federal plus state. If you live in California and sell a long-term gain while in the 15% federal bracket, you owe 15% federal plus California's rate (which varies by income level). The state tax is separate and does not reduce the federal amount.

How to report capital gains on your tax return

You report capital gains on Schedule D (Form 1040), which lists each sale separately. You enter the date you bought, the date you sold, the purchase price, the sale price, and the gain or loss. The form automatically sorts your sales into long-term and short-term.

Your brokerage or investment company sends you a Form 1099-B after the year ends, listing all your sales. You use this form to fill out Schedule D. If you sold through multiple brokerages, you receive multiple 1099-Bs and list all of them.

If your total long-term gains exceed your total long-term losses, the net gain goes on line 15 of Form 1040. If you have a net loss, you can deduct up to $3,000 against ordinary income in that year, and carry forward any remaining loss to future years.

Common situations that affect your capital gains tax

If you inherit an investment, you receive a step-up in basis. This means the IRS resets your cost basis to the value on the date of death. If your parent bought a stock for $10,000 and it was worth $50,000 when they died, your basis is $50,000. If you sell it the next week for $51,000, you owe tax on only $1,000 of gain, not $41,000. This is a major tax benefit of inherited assets.

If you sell a home, you may exclude up to $250,000 of gain (single) or $500,000 (married filing jointly) if you owned and lived in the home for at least two of the last five years. This exclusion applies even if the gain would otherwise be taxed at 15% or 20%. You do not pay tax on the excluded amount.

If you have both long-term and short-term gains in the same year, they are taxed separately. Long-term gains use the 0%, 15%, or 20% rates. Short-term gains use your ordinary income rates. The long-term gains fill your brackets first, then short-term gains stack on top.

Frequently Asked Questions

Do I have to pay capital gains tax if I reinvest the money?

Yes. The tax is based on the gain itself, not on what you do with the proceeds. If you sell a stock for a $10,000 profit and when ready buy another stock with that money, you still owe tax on the $10,000 gain. Reinvesting does not defer or eliminate the tax.

What if I have capital losses — can I use them to reduce my tax bill?

Yes. You can use capital losses to offset capital gains dollar-for-dollar. If you have $15,000 in long-term gains and $8,000 in long-term losses, your net gain is $7,000. If losses exceed gains, you can deduct up to $3,000 of the excess loss against ordinary income in that year. Any remaining loss carries forward to future years.

Does the 0% capital gains rate mean I owe no tax at all?

The 0% federal rate means you owe no federal income tax on that gain. You still report it on your tax return, and you still owe state tax if your state taxes capital gains. The gain also counts toward your total income for purposes of other tax credits or deductions that phase out at higher income levels.

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

Count the days from the purchase date to the sale date. If it is more than one year, it is long-term. The IRS counts the purchase date as day zero and the sale date as day one. If you bought on January 1, 2023, and sold on January 2, 2024, it is long-term. If you sold on January 1, 2024, it is short-term.

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

You can manage which year a gain falls into by choosing when to sell, which may move you into a lower or higher tax bracket. You can also harvest losses in one year to offset gains. However, the IRS has rules against wash sales — you cannot sell a stock at a loss and buy the same or substantially identical stock within 30 days before or after the sale and claim the loss.