What the federal capital gains tax rate is

Federal capital gains tax is a tax on profit you make when you sell an investment for more than you paid for it. The rate depends on how long you held the investment and how much total income you earned that year. For most people, the rate is either 0%, 15%, or 20% — not the same as your regular income tax rate.

Long-term capital gains (assets held more than one year) get these lower rates. Short-term capital gains (assets held one year or less) are taxed as ordinary income, which means your regular tax bracket applies instead. The difference matters: someone in the 24% income tax bracket might pay only 15% on a long-term gain from the same sale.

Key Takeaways

  • Long-term capital gains are taxed at 0%, 15%, or 20% depending on your total income for the year, not your investment amount alone.
  • Short-term capital gains use your regular income tax bracket, which ranges from 10% to 37% in 2024.
  • The income thresholds that determine your rate change yearly and differ based on filing status (single, married filing jointly, head of household).
  • You report capital gains on Schedule D of your tax return, and the IRS matches sales records from your brokerage.
  • State capital gains taxes exist in some states and are separate from federal tax — your total rate depends on where you live.

Long-term capital gains rates for 2024

The 0% rate applies if your total taxable income falls below a certain threshold. For single filers in 2024, that threshold is $47,025. For married couples filing jointly, it is $94,050. For head of household, it is $62,975. If your income is below these numbers, you pay no federal tax on long-term gains.

The 15% rate applies to income above those thresholds up to a higher limit. For single filers, the 15% bracket runs from $47,025 to $518,900. For married filing jointly, it runs from $94,050 to $583,750. For head of household, it runs from $62,975 to $551,350. Most investors fall into this bracket.

The 20% rate applies to income above those upper limits. A single filer with more than $518,900 in taxable income pays 20% on long-term gains above that point. A married couple filing jointly with more than $583,750 pays 20%. These thresholds adjust slightly each year for inflation.

Short-term capital gains and ordinary income tax

When you sell an investment you have owned for one year or less, the profit is taxed as ordinary income. That means it uses the same tax brackets as your wages or salary — 10%, 12%, 22%, 24%, 32%, 35%, or 37% in 2024, depending on your total income and filing status.

This is why holding period matters. Selling a stock after 11 months costs more in tax than selling it after 13 months, even if the profit is identical. The difference between short-term and long-term rates can be substantial — someone in the 37% bracket saves 17 percentage points by waiting one day to hit the one-year mark.

How the IRS calculates your capital gains tax

The IRS does not tax each investment separately. Instead, it adds all your long-term gains together, all your short-term gains together, and then combines them with your other income to find your total taxable income for the year. That total income determines which tax bracket applies.

Your brokerage sends you a Form 1099-B listing every sale you made that year, including the sale price, purchase price, and holding period. You report this on Schedule D of your tax return. The IRS receives the same form from your brokerage, so misreporting is caught quickly.

If you have losses, you can subtract them from gains. If losses exceed gains, you can deduct up to $3,000 of the net loss against ordinary income in that year. Any remaining loss carries forward to future years.

Net Investment Income Tax on high earners

If your modified adjusted gross income exceeds $200,000 (single) or $250,000 (married filing jointly), you owe an additional 3.8% tax on investment income, including capital gains. This is called the Net Investment Income Tax and was enacted in 2013. It applies to the lesser of your net investment income or the amount your income exceeds the threshold.

For example, a single filer with $210,000 in income and $50,000 in long-term capital gains would owe the 3.8% tax on $10,000 (the amount over $200,000). The tax would be $380. This stacks on top of the regular capital gains rate, so a high earner in the 20% bracket effectively pays 23.8% on gains.

State capital gains taxes vary widely

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 federal capital gains tax.

Most other states tax capital gains as ordinary income using their own brackets. California, for instance, taxes long-term gains at the same rate as wages — up to 13.3% at the top bracket. A few states like Iowa and North Carolina have separate capital gains rates that differ from their income tax rates.

Your total tax bill is federal plus state. Someone in California selling a long-term gain while in the top federal bracket (20%) and top state bracket (13.3%) pays 33.3% combined, plus the 3.8% Net Investment Income Tax if applicable.

How to report capital gains on your tax return

You report capital gains on Schedule D, which is part of Form 1040. List each sale separately, showing the date acquired, date sold, cost basis, sale price, and gain or loss. The form automatically separates long-term and short-term gains and calculates the total.

If you have many transactions, you can attach a statement instead of listing each one on the form itself. Your brokerage can usually generate a report in the format the IRS expects. Most tax software imports this data directly from your brokerage account.

Cost basis is what you paid for the investment, including commissions and fees. If you inherited an investment, your cost basis is its value on the date of death, not what the original owner paid. This is called a "step-up in basis" and can eliminate tax on gains that occurred before you inherited it.

Frequently Asked Questions

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

Yes. The tax is due on the gain itself, not on what you do with the proceeds. Reinvesting does not defer or eliminate the tax. You owe it in the year you sell, regardless of whether you spend the money, hold it in cash, or buy something else with it.

What if I sell at a loss?

Capital losses reduce your capital gains dollar-for-dollar. If you have $10,000 in gains and $6,000 in losses, you report a net gain of $4,000. If losses exceed gains, you can deduct up to $3,000 against other income that year, with the remainder carrying forward to future years.

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

Count the days from the date you bought to the date you sold. 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, so buying on January 1 and selling on January 2 of the next year qualifies as long-term.

Do I owe capital gains tax on inherited investments?

No tax is owed on the inheritance itself. Your cost basis becomes the investment's value on the date of death, so gains that occurred before you inherited it are not taxed. You owe tax only on gains that occur after you inherit it.

Can I avoid capital gains tax by holding an investment forever?

During your lifetime, no — you owe tax when you sell. However, if you hold until death, your heirs receive a step-up in basis and owe no tax on the gains that occurred while you owned it. This is why some investors hold appreciated assets indefinitely.