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

The federal tax rate on capital gains — the profit you make when you sell an investment or property — is either 0%, 15%, or 20%, depending on your total income for the year. The longer you hold an asset before selling it, the lower your rate. If you sell something you owned for more than one year, you pay the long-term rate (0%, 15%, or 20%). If you sell something you owned for one year or less, you pay your ordinary income tax rate, which can be as high as 37%.

Your state may also charge capital gains tax on top of the federal rate. Some states charge nothing; others charge between 5% and 13%. The total you owe depends on where you live, what you sold, and your income that year.

Key Takeaways

  • Long-term capital gains (assets held over one year) are taxed at 0%, 15%, or 20% federally, based on your income bracket.
  • Short-term capital gains (assets held one year or less) are taxed as ordinary income, which can reach 37% at the federal level.
  • Your state may add its own capital gains tax, ranging from 0% to 13% depending on where you live.
  • The income thresholds that determine your rate change each year and differ for single filers, married couples, and heads of household.

Long-term capital gains rates and income thresholds

If you held an asset for more than one year before selling it, you may have access to for long-term capital gains rates. For 2024, the federal rates are 0%, 15%, or 20%. Which rate you pay depends on your taxable income for the year.

For single filers in 2024, the 0% rate applies if your taxable income is $47,025 or less. The 15% rate applies between $47,026 and $518,900. The 20% rate applies to income above $518,900. For married couples filing jointly, the 0% rate applies up to $94,050; the 15% rate applies between $94,051 and $583,750; and the 20% rate applies above that. These thresholds change each year, so the numbers will be different in 2025.

Your taxable income includes wages, interest, dividends, and capital gains combined. If you sell a rental property for a $50,000 profit and earn $60,000 in salary, your taxable income is $110,000 for the year, and that determines which capital gains rate applies.

Short-term capital gains and ordinary income tax rates

If you sell an asset you owned for one year or less, the profit is taxed as short-term capital gains. Short-term gains are taxed at your ordinary income tax rate, not the lower long-term rates. Federal ordinary income tax rates range from 10% to 37% depending on your income bracket.

This is why holding period matters. A $10,000 profit on a stock you sold after six months could be taxed at 24% or 32% (ordinary income rates), while the same $10,000 profit on a stock you held for two years might be taxed at 15% (long-term rate). The difference is thousands of dollars.

State capital gains taxes

Nineteen states and Washington, D.C., charge a capital gains tax on top of federal tax. The rates and rules vary widely. Washington state charges 7% on long-term gains above $250,000. Oregon taxes capital gains as ordinary income, so rates range from 4.75% to 9.9%. California adds 13.3% to long-term gains for high earners. New York charges between 6.85% and 10.9% depending on income.

Some states exempt certain types of gains. Washington excludes gains on the sale of a primary residence. Other states have no capital gains tax at all — including Texas, Florida, Nevada, and Wyoming. If you live in a state with no capital gains tax and sell an investment, you pay only the federal rate.

If you move to a different state after selling an asset, the state where you lived when you sold it is usually the one that taxes the gain. This matters if you sell a property in one state and move to another before filing taxes.

How to calculate what you owe

Start with the sale price of the asset minus what you paid for it. That is your capital gain. If you bought a house for $300,000 and sold it for $400,000, your gain is $100,000.

Next, determine whether the gain is long-term or short-term based on how long you owned it. Then find your federal tax bracket based on your total taxable income for the year. Multiply your gain by the applicable rate — 0%, 15%, or 20% for long-term, or your ordinary income rate for short-term. Add any state capital gains tax. That is your total tax liability on the sale.

If you have both gains and losses in the same year, you can subtract losses from gains to reduce your taxable gain. If losses exceed gains, you can deduct up to $3,000 of the net loss against other income in that year, and carry forward any remaining loss to future years.

Special cases: real estate and inherited assets

The sale of a primary residence has a federal exemption. If you are single and owned and lived in the home for at least two of the last five years, you can exclude up to $250,000 of gain from federal tax. Married couples filing jointly can exclude up to $500,000. This exemption applies once every two years. State rules vary — some states offer their own exemption, others do not.

If you inherit an asset, you receive a "step-up in basis." This means the cost basis resets to the asset's 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 when ready for $50,000, you owe no capital gains tax. This step-up applies to most inherited assets, including real estate, stocks, and bonds.

How capital gains affect your overall tax bill

Capital gains can push you into a higher tax bracket, which affects not just the gains themselves but sometimes your ordinary income too. If you are near the edge of a bracket and realize a large gain, it may increase your Medicare premiums, reduce tax deductions you would otherwise receive, or trigger the net investment income tax (an additional 3.8% on gains for high earners).

This is why timing matters. Some people spread asset sales across two tax years to stay in a lower bracket. Others realize losses in the same year as gains to offset them. A tax professional can help you understand how a specific sale will affect your overall tax situation.

Frequently Asked Questions

Do I owe capital gains tax if I sell my primary home?

You may not owe federal tax if you meet the ownership and use test: you owned and lived in the home for at least two of the last five years. Single filers can exclude up to $250,000 of gain; married couples filing jointly can exclude up to $500,000. State rules vary — check your state's rules. The exemption applies once every two years.

What is the difference between long-term and short-term capital gains?

Long-term gains are on assets held over one year and are taxed at 0%, 15%, or 20% federally. Short-term gains are on assets held one year or less and are taxed at your ordinary income rate, which can be as high as 37%. The holding period is measured from the date you bought the asset to the date you sold it.

Can I reduce my capital gains tax by selling at a loss?

Yes. If you sell an investment at a loss, you can subtract that loss from capital gains in the same year. If losses exceed gains, you can deduct up to $3,000 against other income. Any remaining loss carries forward to future years. This is called tax-loss harvesting.

Do I pay capital gains tax on inherited assets?

Usually not, because inherited assets receive a step-up in basis to their value on the date of death. If you inherit a stock worth $50,000 and sell it for $50,000, you owe no capital gains tax. You only owe tax on gains that occur after you inherit it.

How do I know if my state charges capital gains tax?

Nineteen states and Washington, D.C., charge capital gains tax. States with no capital gains tax include Texas, Florida, Nevada, Wyoming, and South Dakota. If your state charges it, the rate and rules are set by your state tax authority. Check your state's tax website or speak with a tax professional to confirm your state's rules.