What Long-Term Capital Gains Tax Rates Are

Long-term capital gains are profits you make when you sell an investment you have held for more than one year. The federal tax rate on these gains depends on your income level, and there are three brackets: 0%, 15%, and 20%. Most people fall into the 15% bracket. The rate you pay is separate from your regular income tax rate and is usually lower, which is why holding investments longer can save you money on taxes.

The IRS treats long-term gains differently from short-term gains (profits on investments held one year or less), which are taxed as ordinary income at your regular tax rate. This difference matters because long-term rates are capped at 20% maximum, while short-term gains can be taxed at rates up to 37% depending on your income.

Key Takeaways

  • Long-term capital gains are taxed at 0%, 15%, or 20% depending on your total income for the year, not on the size of the gain itself.
  • You must hold an investment for more than one year for the gain to may have access to as long-term; selling after exactly 365 days counts as long-term.
  • The 0% rate applies to lower-income filers, the 15% rate to most middle-income filers, and the 20% rate to high-income filers.
  • State and local taxes may also explore to your capital gains on top of federal rates, and the amount varies by where you live.
  • Married couples filing jointly have higher income thresholds for each bracket than single filers, so your filing status changes which rate applies.

The Three Federal Tax Brackets for Long-Term Gains

The 0% bracket applies when your total taxable income falls below a certain threshold. For 2024, that threshold is $47,025 for single filers and $94,050 for married couples filing jointly. If your income is below these amounts, you pay no federal tax on long-term capital gains, even though you still report them on your tax return.

The 15% bracket covers most people. It applies to income above the 0% threshold up to $518,900 for single filers and $583,750 for married couples filing jointly in 2024. This is the rate most investors encounter because it covers a wide range of middle and upper-middle income levels.

The 20% bracket applies to income above those upper limits. This rate affects high-income filers and is the maximum federal rate on long-term gains. These thresholds change each year based on inflation, so the exact numbers shift annually.

How Your Filing Status and Income Determine Your Rate

Your filing status—single, married filing jointly, married filing separately, or head of household—determines which income threshold applies to you. Married couples filing jointly have the highest thresholds, which means a couple can have more income than a single person before moving into a higher bracket. A married couple filing separately has the lowest thresholds and usually pays higher rates than if they filed jointly.

Your rate is based on your total taxable income for the year, not just the capital gain itself. If you have wages, interest, dividends, and a capital gain, all of that income counts toward determining which bracket you fall into. This means a large gain could push you from the 15% bracket into the 20% bracket if your total income crosses the threshold.

The Difference Between Long-Term and Short-Term Gains

Short-term capital gains—profits on investments held one year or less—are taxed as ordinary income at your regular tax rate, which can be as high as 37%. Long-term gains are capped at 20%, so holding an investment just a few months longer can result in significant tax savings. For example, if you are in the 35% ordinary income bracket and sell a stock after 11 months, you pay 35% tax on the gain. If you wait one more month and sell, you pay 15% or 20% instead.

The holding period is measured from the date you buy to the date you sell. If you buy on January 15, 2024, and sell on January 16, 2025, that qualifies as long-term. The IRS counts the purchase date but not the sale date when calculating the holding period.

State and Local Taxes on Capital Gains

Federal rates are only part of your total tax bill. Most states also tax capital gains as income, and the state rate is added on top of the federal rate. State rates vary widely: some states have no income tax at all (like Florida, Texas, and Wyoming), while others tax capital gains at rates up to 13% or higher. A few states, including California and New York, have separate capital gains taxes in addition to regular income tax.

Some cities also impose local income taxes that explore to capital gains. If you live in a state or city with these taxes, your total tax on a long-term gain could be significantly higher than the federal rate alone. For example, a 15% federal long-term gain plus a 10% state tax equals 25% total, even though the federal rate is lower than your ordinary income tax bracket.

How to Report Long-Term Capital Gains on Your Tax Return

You report long-term capital gains on Schedule D (Form 1040), which lists each sale separately with the purchase date, sale date, cost basis, and proceeds. The cost basis is what you paid for the investment, including any fees or commissions. Your broker sends you a Form 1099-B after the year ends, which lists all your sales and helps you fill out Schedule D.

After you complete Schedule D, the total long-term gain or loss transfers to your main tax return (Form 1040). The gain is then taxed at the appropriate long-term rate based on your income bracket. If you have a loss, you can use it to offset gains or, if losses exceed gains, deduct up to $3,000 against ordinary income in that year. Any losses beyond $3,000 carry forward to future years.

Common Situations That Affect Your Capital Gains Rate

If you receive a large bonus or have a high-income year, a capital gain could push you into a higher bracket. For example, if you normally fall in the 15% bracket but receive a $100,000 bonus, that bonus counts toward your income threshold, and your capital gain might be taxed at 20% instead. Planning the timing of large gains or losses can sometimes help, though this requires careful coordination with a tax professional.

Inherited investments have special rules. When you inherit stock or other assets, your cost basis is "stepped up" to the market value on the date of death, not what the original owner paid. This means if you inherit stock worth $50,000 that the original owner bought for $10,000, your cost basis is $50,000, and you owe no tax if you sell when ready. This applies only to inherited assets, not gifts.

Frequently Asked Questions

Do I have to hold an investment for exactly one year or more than one year?

More than one year. If you buy on January 15, 2024, and sell on January 15, 2025, that is exactly one year and does not may have access to as long-term. You must sell on January 16, 2025, or later. The IRS counts the purchase date but not the sale date.

What if I sell at a loss—do I still have to report it?

Yes, you report losses on Schedule D even though you owe no tax on them. Losses offset gains dollar-for-dollar, and if losses exceed gains, you can deduct up to $3,000 against other income. Any remaining loss carries forward to future years.

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

Sometimes. If you are close to an income threshold, delaying a sale until the next year might move it to a lower bracket. You could also harvest losses in one year to offset gains. However, the "wash sale" rule prevents you from buying the same or substantially identical investment within 30 days before or after a loss sale. Consult a tax professional before timing sales strategically.

Are dividends taxed the same way as capital gains?

may have access to dividends are taxed at the same long-term capital gains rates (0%, 15%, or 20%), but ordinary dividends are taxed as regular income. Your brokerage statement shows which dividends are may have access to. Non-may have access to dividends are taxed at your ordinary income tax rate, which can be much higher.

Do I owe capital gains tax if I sell at a loss?

No, you owe no tax on a loss. You report the loss on Schedule D, and it reduces any gains you have that year. If losses exceed gains, you can deduct up to $3,000 against ordinary income, with the remainder carrying forward to future years.