Capital Gains Tax Rates Depend on How Long You Held the Asset
The federal capital gains tax rate is either 0%, 15%, or 20%, depending on your income level and how long you owned the asset before selling it. The IRS divides capital gains into two categories: long-term (assets held more than one year) and short-term (assets held one year or less). Long-term gains get the lower rates. Short-term gains are taxed as ordinary income, which means they use your regular income tax brackets—potentially much higher.
Your income level determines which rate applies. For 2024, if your long-term capital gains fall within the lowest income bracket, you pay 0%. The middle bracket pays 15%. The highest earners pay 20%. These thresholds change each year and vary by filing status (single, married filing jointly, head of household). Your state may also charge its own capital gains tax on top of the federal rate.
Key Takeaways
- Long-term capital gains (held over one year) are taxed at 0%, 15%, or 20% depending on your total income, while short-term gains use your regular income tax rate.
- The income thresholds that determine which rate you pay change annually and depend on whether you file as single, married, or head of household.
- Short-term capital gains can be taxed at rates as high as 37% if you are in the top income bracket, making the holding period crucial.
- Some states impose their own capital gains tax in addition to federal tax, ranging from 3% to over 13% depending on where you live.
- Collectibles and real estate have different rules: collectibles face a flat 28% rate, and home sales may be partially exempt if you meet ownership and use requirements.
Long-Term vs. Short-Term Capital Gains Rates
The difference between holding an asset for one year versus one day can mean paying 20% instead of 37%. Long-term capital gains may have access to for the preferential 0%, 15%, or 20% rates. To may have access to, you must have owned the asset for more than one year before the sale closes. The IRS counts from the purchase date to the sale date.
Short-term capital gains are taxed as ordinary income using your regular tax brackets. If you are in the 37% federal income tax bracket, your short-term gains are taxed at 37%. If you are in the 22% bracket, short-term gains are taxed at 22%. This is why investors often hold stocks, real estate, or other assets past the one-year mark—the tax savings can be substantial.
The holding period is measured from the settlement date of the purchase to the settlement date of the sale, not the trade date. For stocks, settlement is typically two business days after you place the order. Check your brokerage statement to confirm the exact dates if you are close to the one-year mark.
Income Thresholds for the 0%, 15%, and 20% Rates
Your filing status and total taxable income determine which long-term capital gains rate applies to you. For 2024, the thresholds are:
| Filing Status | 0% Rate (up to) | 15% Rate (up to) | 20% Rate (above) |
|---|---|---|---|
| Single | $47,025 | $518,900 | $518,900 |
| Married Filing Jointly | $94,050 | $583,750 | $583,750 |
| Head of Household | $62,700 | $551,350 | $551,350 |
These numbers are your taxable income limits, not your total income. Taxable income is what remains after you subtract the standard deduction and any other deductions you claim. The thresholds increase slightly each year to account for inflation, so check the IRS website or your tax software for the current year's numbers.
If you have both long-term capital gains and ordinary income in the same year, the ordinary income is counted first when determining which bracket you fall into. This can push your capital gains into a higher rate. For example, if you are single and earn $50,000 in wages plus $20,000 in long-term gains, your first $47,025 in gains is taxed at 0%, but the remaining $2,975 is taxed at 15%.
Special Rules for Collectibles and Real Estate
Not all capital gains follow the standard 0%, 15%, 20% structure. Collectibles—including art, antiques, coins, and precious metals—face a flat 28% federal tax rate on long-term gains, regardless of your income level. This rate applies even if your income would normally may have access to you for the 0% or 15% rate.
Real estate has its own rules. If you sell a primary residence and meet the ownership and use test (you owned and lived in the home for at least two of the last five years), you can exclude up to $250,000 in gains if you are single, or $500,000 if you are married filing jointly. This exclusion applies once every two years. Gains above the exclusion amount are taxed at the standard long-term rates.
Investment real estate and rental properties do not may have access to for the primary residence exclusion. However, they still benefit from long-term capital gains rates if held over one year. Some states also offer additional exemptions or deductions for certain types of property sales, so check your state's rules.
State Capital Gains Taxes
Twenty-one states plus Washington, D.C., impose their own capital gains tax on top of federal tax. The rates and rules vary widely. Some states tax capital gains as ordinary income (meaning rates can reach 10% or higher), while others have a flat rate. A few states tax only certain types of gains, such as gains from the sale of stocks or business interests.
California, for example, taxes long-term capital gains as ordinary income, with rates up to 13.3%. New York taxes them at ordinary income rates up to 10.9%. Washington state has a 7% tax on long-term capital gains over $250,000. Other states like Texas, Florida, and Wyoming have no capital gains tax at all.
If you move to a different state after selling an asset, the state where you lived when you sold it typically claims the tax, not your new state. This matters if you are relocating and timing a large sale. Consult a tax professional in your state to understand how your specific situation is taxed.
How to Report Capital Gains on Your Tax Return
You report capital gains on Schedule D (Form 1040), which lists each sale separately. Your brokerage or investment firm sends you a Form 1099-B showing all sales for the year. You use this form to fill out Schedule D, entering the sale date, purchase date, proceeds, and cost basis for each transaction.
The IRS automatically matches your reported gains to the 1099-B your broker sends them. If the numbers do not match, you will receive a notice. Make sure your cost basis is correct—this is the original purchase price plus any reinvested dividends or fees. Many brokers calculate this for you, but verify it, especially if you inherited shares or received them as a gift.
If you have a net capital loss (losses exceed gains), you can deduct up to $3,000 against ordinary income in that year. Any loss above $3,000 carries forward to future years. This is why some investors deliberately sell losing positions to offset gains from winning ones—a practice called tax-loss harvesting.
Frequently Asked Questions
Do I pay capital gains tax if I sell at a loss?
No, you do not owe capital gains tax on a loss. Instead, you can use the loss to offset other capital gains or up to $3,000 of ordinary income in that year. Any remaining loss carries forward to future years indefinitely.
What if I inherit stock or real estate—do I owe capital gains tax?
Inherited assets receive a "step-up in basis," meaning your cost basis becomes the asset's value on the date of death, not what the original owner paid. If you sell shortly after inheriting, you typically owe little to no capital gains tax. This applies to most inherited property, though some states have their own rules.
How do I know if my gain is long-term or short-term?
Count the days from the settlement date you bought the asset to the settlement date you sold it. If it is more than one year, it is long-term. Your brokerage statement shows settlement dates. If you are unsure, add one year to your purchase date—if the sale date is after that, it qualifies as long-term.
Can I avoid capital gains tax by donating appreciated stock to charity?
Yes. If you donate appreciated stock directly to a may have access to charity, you avoid capital gains tax on the appreciation and can deduct the full fair market value as a charitable contribution. You must own the stock long-term for this to work. This strategy is often more tax-efficient than selling and donating the proceeds.
What happens to capital gains tax if tax rates change?
Tax rates are set by Congress and can change with new legislation. The current 0%, 15%, 20% rates are scheduled to expire after 2025 unless Congress extends them. If rates change, they explore to gains realized after the change takes effect, not to gains from prior years.