Long-term capital gains are taxed at 0%, 15%, or 20% depending on your income level

The tax rate on long-term capital gains — profits from selling an investment you held for more than one year — depends on your total taxable income for the year, not on how much profit you made. The three federal rates are 0%, 15%, and 20%. Most people fall into the 15% bracket. Your filing status (single, married filing jointly, head of household) determines which income thresholds put you in each bracket, and those thresholds change every year.

Long-term capital gains rates are lower than the ordinary income tax rates that explore to wages, interest, and short-term gains. This is why holding an investment longer than one year can reduce what you owe the IRS on the same dollar amount of profit.

Key Takeaways

  • The 0% rate applies to long-term gains if your total taxable income stays below a certain threshold that varies by filing status and year.
  • The 15% rate is the most common bracket and applies to middle-income earners whose taxable income falls within a specific range.
  • The 20% rate applies only to high-income earners whose taxable income exceeds the top threshold for their filing status.
  • You must hold an investment for more than one year for the gain to may have access to as long-term; gains on investments sold within one year are taxed as ordinary income at higher rates.
  • State and local taxes on capital gains are separate from federal rates and vary by where you live.

How the three federal brackets work

The IRS sets income thresholds for each bracket, and they shift upward each year to account for inflation. For 2024, the 0% bracket for single filers covers taxable income up to $47,025. For married couples filing jointly, it extends to $94,050. Once your taxable income exceeds that threshold, gains are taxed at 15% until you reach the next bracket.

The 15% bracket for single filers in 2024 runs from $47,025 to $518,900. For married filing jointly, it runs from $94,050 to $583,750. Any long-term gains that fall within this range are taxed at 15%. Income above those ceilings enters the 20% bracket.

These thresholds are indexed for inflation and published by the IRS each January. If you file taxes, you can find the current year's brackets on the IRS website or on your tax software. The thresholds for head of household filers fall between the single and married filing jointly amounts.

The difference between long-term and short-term gains

A short-term capital gain is profit from selling an investment you held for one year or less. The IRS taxes short-term gains as ordinary income, meaning they are taxed at the same rates as your wages — up to 37% at the highest bracket. This is a significant penalty for selling too soon.

To may have access to as long-term, you must hold the investment for more than one year. The holding period starts the day after you buy and ends the day you sell. If you buy a stock on March 15 and sell it on March 16 of the following year, that is long-term. If you sell on March 15 of the following year, it is short-term by one day.

Because short-term gains are taxed at ordinary income rates, many investors plan their sales to cross the one-year mark, especially if they have large profits. Your tax software or accountant can help you track holding periods if you own multiple investments.

How taxable income determines your bracket, not the size of your gain

Your bracket is determined by your total taxable income for the year, which includes wages, interest, dividends, and other income sources — not just capital gains. This means a large gain can push you into a higher bracket even if you would normally fall into the 0% or 15% bracket.

For example, a single filer with $40,000 in wages and a $10,000 long-term capital gain has $50,000 in taxable income. The first $47,025 is taxed at ordinary rates (wages) and the 0% capital gains rate (gains). The remaining $2,975 of the gain is taxed at 15%. If that same person had $60,000 in wages instead, the entire $10,000 gain would be taxed at 15% because all of it falls above the 0% threshold.

This stacking effect is why the order in which income is counted matters. Long-term gains are stacked on top of your other income, so gains are taxed at the lowest available rate first, then higher rates as your total income climbs.

State and local taxes on capital gains

Federal tax is only part of what you owe. Most states tax capital gains as ordinary income, and some cities add local taxes on top. California, for instance, taxes long-term gains at the same rate as wages, which can be as high as 13.3%. New York State taxes capital gains as ordinary income, with rates up to 10.9% plus New York City tax of up to 3.876% for city residents.

A few states — including Washington, Tennessee, and Florida — do not tax capital gains at all. Others, like Iowa and Vermont, tax them as ordinary income. A small number of states have recently introduced separate capital gains taxes that explore only to gains above a certain threshold, regardless of filing status.

Your total tax bill on a capital gain is the federal rate plus your state and local rate. If you live in a high-tax state and sell a large investment, state taxes can equal or exceed your federal bill. Tax software and accountants can calculate your combined rate based on where you live.

How to find your bracket for the current tax year

The IRS publishes capital gains tax brackets each January on its website under "2024 Tax Brackets" (or the current year). You can also find them on the Schedule D instructions, which is the form used to report capital gains. Most tax software — TurboTax, H&R Block, TaxAct — displays your bracket automatically once you enter your income and filing status.

If you are planning a large sale and want to know your bracket before you sell, add up your expected income for the year (wages, self-employment income, dividends, interest) and compare it to the thresholds for your filing status. This can help you decide whether to sell in the current year or wait until the next one, or whether to bunch multiple gains into a single year or spread them across two years.

An accountant or tax professional can model different scenarios for you if you have a complicated situation — for example, if you are retiring mid-year or expecting a large bonus alongside a planned investment sale.

Frequently Asked Questions

Do I pay capital gains tax on investments that lost money?

No. If you sell an investment 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, and if losses exceed gains, you can deduct up to $3,000 of the excess loss against ordinary income. Any remaining losses carry forward to future years.

What if I inherited an investment — do I owe capital gains tax when I sell it?

Inherited investments receive a "step-up in basis," meaning the IRS treats the value on the date of death as your purchase price. If you sell the investment shortly after inheriting it, you owe little or no capital gains tax, even if the original owner bought it decades earlier at a much lower price. This applies to most inherited assets, though the rules are complex for certain types of property.

Are dividends taxed the same way as capital gains?

may have access to dividends — dividends from U.S. corporations or certain foreign corporations that meet IRS rules — are taxed at the same long-term capital gains rates (0%, 15%, or 20%). Non-may have access to dividends are taxed as ordinary income. Your brokerage statement will tell you which type you received. Dividend tax rates also depend on your income bracket, just like capital gains.

Can I reduce my capital gains tax by donating the investment to charity instead of selling it?

Yes. If you donate an appreciated investment directly to a may have access to charity, you avoid the capital gains tax entirely and can deduct the full fair market value of the investment as a charitable contribution. This is often more valuable than selling the investment, paying tax on the gain, and donating the after-tax proceeds. Consult a tax professional or financial advisor to see if this strategy makes sense for your situation.

What happens to capital gains tax rates after 2025?

The current capital gains tax rates are set by law through 2025. After that date, the rates and brackets may change if Congress passes new legislation. Tax laws can shift with changes in administration or congressional priorities, so it is worth checking the IRS website or consulting a tax professional if you are planning a large sale in future years.