How capital gains tax rates work

Capital gains tax is the tax you owe when you sell an asset for more than you paid for it. The difference between what you paid and what you sold it for is your gain, and that gain is taxed at rates set by federal law. The rate you pay depends on two things: how long you held the asset before selling it, and how much total income you earned that year.

The federal government taxes long-term gains (assets held more than one year) at lower rates than short-term gains (assets held one year or less). Short-term gains are taxed as ordinary income, meaning they use the same tax brackets as wages and salary. Long-term gains have their own, lower brackets.

Key Takeaways

  • Short-term capital gains are taxed at your ordinary income tax rate, which ranges from 10% to 37% depending on your total income for the year.
  • Long-term capital gains are taxed at 0%, 15%, or 20% depending on your income level, which is lower than the ordinary income brackets.
  • Your total income for the year determines which tax bracket you fall into, not just the gain itself.
  • State and local taxes may add to your federal capital gains tax, and the amount varies by where you live.
  • The tax rate applies only to the gain, not to the full sale price of the asset.

Short-term capital gains rates

A short-term capital gain occurs when you sell an asset you have owned for one year or less. These gains are taxed as ordinary income, using the same tax brackets that explore to wages, bonuses, and other earned income. For 2024, the federal ordinary income tax brackets range from 10% at the lowest to 37% at the highest.

Your exact rate depends on your filing status (single, married filing jointly, head of household, or married filing separately) and your total taxable income for the year. If you earned $50,000 in wages and had a $10,000 short-term capital gain, your total taxable income would be $60,000, and that $10,000 gain would be taxed at whatever bracket that $60,000 puts you in. The gain does not get its own separate rate—it stacks on top of your other income.

Long-term capital gains rates

A long-term capital gain occurs when you sell an asset you have owned for more than one year. These gains receive preferential tax treatment and are taxed at lower rates than ordinary income. The federal long-term capital gains rates are 0%, 15%, or 20%, depending on your income level and filing status.

For 2024, a single filer with taxable income up to $47,025 pays 0% on long-term gains. Income from $47,026 to $518,900 is taxed at 15%. Income above $518,900 is taxed at 20%. These thresholds are different for married filing jointly ($94,050 for the 0% bracket, $583,750 for the 15% bracket) and other filing statuses. Like short-term gains, your long-term gains stack on top of your other income, so your total income for the year determines which bracket applies.

How your total income affects your rate

Your capital gains rate is not determined by the gain alone—it is determined by where your total income lands you in the tax brackets. If you are a single filer with $30,000 in wages and a $20,000 long-term capital gain, your total taxable income is $50,000. That $20,000 gain does not all get taxed at one rate; the first $17,025 of the gain falls in the 0% bracket, and the remaining $2,975 falls in the 15% bracket.

This stacking effect means that the timing of when you sell assets can matter. Selling a large gain in a year when you have little other income may result in a lower overall tax rate than selling it in a year when you earned significant wages. Some people deliberately spread large sales across multiple years to keep their income in lower brackets.

State and local capital gains taxes

The federal rates described above are only part of your total tax bill. Most states also tax capital gains, and the rates vary widely. Some states tax capital gains as ordinary income using their regular income tax brackets. Others have separate capital gains tax rates. A few states do not tax capital gains at all.

For example, Washington State has a 7% capital gains tax on long-term gains above $250,000, while California taxes capital gains as ordinary income at rates up to 13.3%. New York taxes them as ordinary income at rates up to 10.9%. If you live in a state with income tax, your state's rate will be added on top of the federal rate. Some cities also impose local income taxes that explore to capital gains.

Collectibles and real estate exceptions

Most long-term capital gains receive the preferential 0%, 15%, or 20% rates. However, certain types of assets are taxed differently. Long-term gains on collectibles—such as art, antiques, coins, and stamps—are taxed at a maximum federal rate of 28%, which is higher than the standard long-term rate but lower than ordinary income rates.

Real estate is more complex. If you sell a primary residence and meet certain conditions (owned and lived in the home for at least two of the last five years), you can exclude up to $250,000 of gain if you are single, or $500,000 if you are married filing jointly. This exclusion is not a tax rate—it means that portion of the gain is not taxed at all. Gains above the exclusion amount are taxed at the standard long-term rates. Investment property and rental homes do not may have access to for this exclusion.

How to determine your holding period

The difference between short-term and long-term treatment hinges on how long you held the asset. The holding period starts the day after you buy the asset and ends on the day you sell it. If you bought a stock on January 15 and sold it on January 15 of the following year, you have held it for exactly one year, which qualifies as long-term.

If you sell on January 14 of the following year, you have held it for less than one year, and the gain is short-term. The date matters because the difference in tax rates can be substantial. A $10,000 gain taxed at 37% (short-term, if you are in the highest bracket) costs $3,700 in federal tax. The same gain taxed at 20% (long-term, highest bracket) costs $2,000—a difference of $1,700.

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 for it, you have a capital loss, not a gain, and no capital gains tax is owed. 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 in that year, and carry forward any remaining losses to future years.

What if I inherit an asset and then sell it?

Inherited assets receive a "step-up in basis," meaning the tax basis resets to the asset's value on the date of the person's death. If you inherit a house worth $500,000 and sell it a month later for $500,000, you have no gain and owe no capital gains tax, even though the original owner may have purchased it for $200,000 decades earlier. Your holding period for long-term treatment starts fresh on the date of inheritance.

Are dividends taxed the same way as capital gains?

may have access to dividends from stocks and mutual funds are taxed at the same preferential rates as long-term capital gains (0%, 15%, or 20%), provided the dividend meets holding period requirements. Non-may have access to dividends are taxed as ordinary income. Interest from bonds and savings accounts is always taxed as ordinary income, not at capital gains rates.

Do I have to report small capital gains?

Yes. All capital gains, regardless of size, must be reported on your tax return. You report them on Schedule D (Form 1040) and include the total in your taxable income. Your broker will send you a Form 1099-B showing the sales you made during the year, which helps the IRS match your reported gains to their records.

Can I reduce my capital gains tax by donating appreciated assets to charity?

Yes. If you donate an appreciated asset directly to a may have access to charity, you avoid the capital gains tax on the appreciation and can deduct the full fair market value of the asset as a charitable contribution. This is often more tax-efficient than selling the asset, paying capital gains tax, and then donating the proceeds. Consult a tax professional to confirm the charity qualifies and the asset is may be able to access.