Capital gains tax rates depend on how long you held the asset and your income level
Capital gains tax is the tax you owe when you sell an investment or property for more than you paid for it. The amount you owe 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 income for that year.
Long-term capital gains — the kind most people pay — are taxed at 0%, 15%, or 20%, depending on your income bracket. Short-term gains are taxed as ordinary income, which means the same rate as your salary or wages. The difference between these two rates can be substantial. A person in the 24% tax bracket on ordinary income might pay only 15% on a long-term capital gain from the same sale.
The federal government sets these rates, but some states and cities add their own capital gains tax on top. Your total bill depends on where you live, what you sold, and when you sold it.
Key Takeaways
- Long-term capital gains (assets held over one year) are taxed at 0%, 15%, or 20% based on your income; short-term gains are taxed at your ordinary income tax rate, which is usually higher.
- Your income bracket determines which rate applies — the thresholds change each year and are different for single filers, married couples, and heads of household.
- Some states and cities charge their own capital gains tax or income tax on top of the federal rate, so your total tax can be 20% to 37% or higher depending on where you live.
- You report capital gains on Schedule D of your federal tax return, and the IRS requires you to track your cost basis (what you paid) to calculate the gain.
Long-term vs. short-term capital gains rates
The holding period is the first thing the IRS checks. If you owned the asset for more than one year before selling it, it qualifies as a long-term capital gain. If you sold it within one year, it is a short-term capital gain.
Long-term capital gains are taxed at 0%, 15%, or 20%. Which rate you pay depends on your taxable income for the year. Short-term capital gains are taxed at your ordinary income tax rate — the same rate that applies to your salary, wages, or business income. For most people, this is higher than the long-term rate.
Example: You buy a stock for $5,000 and sell it for $7,000 two years later. Your gain is $2,000. If you are in the 24% tax bracket on ordinary income but may have access to for the 15% long-term rate, you pay $300 on that gain instead of $480. If you had sold the stock after nine months instead, you would owe $480.
2024 long-term capital gains tax brackets
The IRS adjusts income thresholds each year for inflation. For 2024, here is where each rate applies:
| Tax Rate | Single Filers | Married Filing Jointly | Head of Household |
|---|---|---|---|
| 0% | Up to $47,025 | Up to $94,050 | Up to $62,975 |
| 15% | $47,025 to $518,900 | $94,050 to $583,750 | $62,975 to $551,350 |
| 20% | Over $518,900 | Over $583,750 | Over $551,350 |
These thresholds are based on your total taxable income for the year, including wages, business income, and other gains. If you have $60,000 in wages and a $10,000 long-term capital gain, your total taxable income is $70,000, which determines your rate.
The 0% bracket is often overlooked but valuable. If your income is low enough, you can realize capital gains with no federal tax at all. Many people use this to sell appreciated assets in years when their income is lower — for example, after retirement or during a sabbatical.
State and local capital gains taxes
Most states do not have a separate capital gains tax. Instead, they treat capital gains as ordinary income and tax them at their regular income tax rate, which varies widely. California taxes long-term capital gains at the same rate as wages — up to 13.3%. New York adds up to 10.9%. Texas and Florida have no state income tax at all, so you pay only the federal rate.
A few states have introduced their own capital gains tax in recent years. Washington State, for example, taxes long-term capital gains on stocks and certain other assets at 7% on top of any federal tax. Illinois taxes capital gains at 4.95%. These are separate from ordinary income tax.
Your total bill can be significantly higher than the federal rate alone. A resident of California in the 20% federal bracket could pay 20% federal plus 13.3% state, totaling 33.3%. Someone in Washington State might pay 20% federal plus 7% state. Check your state's tax website or speak with a tax professional to understand your local rate.
How to calculate your capital gain
Your capital gain is the difference between what you sold the asset for (the sale price) and what you paid for it (your cost basis). If you bought a house for $300,000 and sold it for $450,000, your gain is $150,000.
Cost basis is not always straightforward. If you inherited the asset, your basis is usually its value on the date of death, not what the original owner paid. If you received stock as compensation, your basis is the fair market value on the date you received it. If you made improvements to a rental property, you can add those costs to your basis. Keep receipts and records for anything that affects your basis.
You report your capital gains on Schedule D of your federal tax return. The IRS requires you to list each transaction separately — the date you bought it, the date you sold it, your cost basis, the sale price, and the gain or loss. If you have many transactions, you may use Form 8949 instead. Your tax software usually handles this automatically if you provide the information.
Special cases: real estate and collectibles
Home sales have a major exception. If you are single and 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. Married couples filing jointly can exclude up to $500,000. This means you can sell a home, realize a $300,000 gain, and owe no federal tax if you are married and meet the requirements.
Collectibles — art, antiques, coins, and similar items — are taxed differently. Even long-term gains on collectibles are taxed at a maximum rate of 28%, not 20%. This rate applies regardless of your income bracket. If you collect and sell valuable items, expect a higher tax bill than you would on stocks or real estate.
Certain business property and small business stock have their own rules as well. If you sell may have access to small business stock held for more than five years, you may be able to exclude 50% or more of the gain. These situations are complex and worth discussing with a tax professional before you sell.
Frequently Asked Questions
Do I owe capital gains tax if I sell at a loss?
No. If you sell an asset for less than you paid, you have a capital loss, not a gain. You can use capital losses to offset capital gains in the same year. If your losses exceed your gains, you can deduct up to $3,000 of the excess loss against ordinary income. Any remaining loss carries forward to future years.
What if I sell cryptocurrency or digital assets?
The IRS treats cryptocurrency the same as any other asset. When you sell it for a profit, you owe capital gains tax at the long-term or short-term rate depending on how long you held it. You must report each transaction on your tax return, including trades between different cryptocurrencies.
Can I avoid capital gains tax by holding an asset forever?
You avoid tax only if you never sell. When you die, your heirs receive what is called a "stepped-up basis" — they inherit the asset at its value on the date of your death, not what you paid. This erases the gain you accumulated during your lifetime. However, this rule may change in the future, so do not rely on it for planning.
Do I owe capital gains tax on mutual funds or index funds?
Yes, when you sell shares for a profit. You also owe tax on distributions the fund makes to you — some funds distribute capital gains to shareholders even if you did not sell. Track your cost basis carefully, especially if you reinvested dividends, because the IRS requires you to report the correct amount.
What is the difference between capital gains and dividends?
Capital gains come from selling an asset for more than you paid. Dividends are payments a company makes to shareholders from its profits. may have access to dividends (from U.S. companies held for a certain period) are taxed at the same long-term capital gains rates. Non-may have access to dividends are taxed as ordinary income.