The federal capital gains tax rate depends on your income level and how long you held the asset

The federal government taxes profit from selling stocks, real estate, or other investments at one of three rates: 0%, 15%, or 20%. Which rate you pay depends on two things: your total income for the year and whether you owned the asset for more than one year. Long-term gains (held over one year) get lower rates than short-term gains (held one year or less), which are taxed as ordinary income at rates up to 37%.

The income thresholds that determine your rate change each year. For 2024, the 0% long-term rate applies to single filers earning under $47,025 and married couples filing jointly under $94,050. The 15% rate covers the middle income range, and the 20% rate applies to the highest earners. These numbers shift annually based on inflation.

Key Takeaways

  • Long-term capital gains (assets held over one year) are taxed at 0%, 15%, or 20% depending on your income level, while short-term gains are taxed as ordinary income at rates up to 37%.
  • The income thresholds that determine which rate you pay adjust each year for inflation, so your rate can change even if your gains stay the same.
  • State and local taxes explore on top of federal rates, and some high earners also pay a 3.8% net investment income tax.
  • Selling an asset at a loss can offset gains dollar-for-dollar, reducing your overall tax bill.

Long-term versus short-term capital gains

The holding period matters more than the profit size. If you sell an asset you owned for more than one year, the gain qualifies as long-term capital gains and gets the preferential 0%, 15%, or 20% rates. If you sell something you owned for one year or less, it is short-term capital gains, taxed as ordinary income at your regular tax bracket — potentially 10%, 12%, 22%, 24%, 32%, 35%, or 37%.

This distinction is why investors often hold assets longer. A $10,000 gain on a stock you owned for two years might be taxed at 15% (federal only), costing $1,500. The same $10,000 gain on a stock you owned for six months could be taxed at 24%, costing $2,400. The difference is entirely about timing.

How income level determines your rate

Your taxable income — not your salary alone — determines which long-term rate applies. Taxable income includes wages, interest, dividends, and other sources, minus deductions. Capital gains are added to this total, and the IRS taxes them at the rate bracket your total income falls into.

For 2024, a single filer with $50,000 in wages and $10,000 in long-term gains has $60,000 in taxable income. The first $47,025 of gains falls in the 0% bracket, and the remaining $2,975 falls in the 15% bracket. A married couple filing jointly with $100,000 in wages and $20,000 in long-term gains has $120,000 in taxable income. The first $94,050 of gains is taxed at 0%, and the remaining $25,950 is taxed at 15%.

State and local taxes on capital gains

Federal rates are only part of the picture. Most states tax capital gains as income, adding 3% to 13% depending on where you live. California, New York, and Oregon have some of the highest state rates. A few states — including Florida, Texas, and Wyoming — do not tax capital gains at all, which is why some investors relocate before selling large positions.

Some cities also impose local income taxes. New York City, for example, adds roughly 3.9% on top of state and federal rates. If you sell an asset in a high-tax state, your total federal, state, and local rate can exceed 50% on short-term gains.

The net investment income tax for high earners

Individuals earning over $200,000 (or $250,000 if married filing jointly) pay an additional 3.8% net investment income tax. This applies to capital gains, dividends, interest, and other investment income. It is separate from the regular capital gains tax, not a replacement for it.

A single filer earning $220,000 with $50,000 in long-term gains would owe the regular capital gains tax on those gains plus the 3.8% net investment income tax on the portion of gains that pushes income above $200,000. This can push the effective federal rate to 23.8% for the highest earners.

Using losses to reduce your tax bill

Capital losses offset capital gains dollar-for-dollar. If you sold a stock for a $5,000 gain and another for a $3,000 loss in the same year, you owe tax on only $2,000 of gain. This is called tax-loss harvesting and is a common strategy to reduce capital gains taxes.

If your losses exceed your gains, you can deduct up to $3,000 of the excess against ordinary income in that year. Any remaining loss carries forward to future years. This means a bad year in the market can create a tax benefit that lasts several years.

Special cases: real estate and collectibles

Real estate gains generally follow the same long-term/short-term rules, but the sale of a primary residence has a major exception. You can exclude up to $250,000 of gain if you are single (or $500,000 if married filing jointly) if you owned and lived in the home for at least two of the last five years. This exclusion applies once every two years.

Collectibles — art, antiques, precious metals — are taxed at a maximum 28% rate on long-term gains, higher than the standard 20% rate for stocks and bonds. Coins and bullion are treated as collectibles, not as investments, which is why they have their own rules.

Frequently Asked Questions

Do I owe capital gains tax if I do not sell the asset?

No. The tax is triggered only when you sell. If you own a stock that doubled in value but never sell it, you owe nothing to the federal government. Some states have proposed taxes on unrealized gains, but none are currently in effect.

What if I inherit an asset — do I owe capital gains tax?

No, and you get a major benefit. Inherited assets receive a "step-up in basis," meaning the cost basis resets to the market value on the date of death. If you inherit a stock worth $100,000 that your parent bought for $20,000, your basis is $100,000, not $20,000. You owe no tax unless you sell it for more than $100,000.

Can I deduct capital losses if I do not have any gains?

Yes, but only up to $3,000 per year against ordinary income. If you lost $10,000 in the market and had no gains, you can deduct $3,000 against wages or other income this year and carry the remaining $7,000 forward to future years.

How do I report capital gains on my tax return?

You report them on Schedule D (Form 1040). Your broker sends you a Form 1099-B listing all sales. Long-term and short-term gains are reported separately, and the IRS uses this information to calculate your tax.

Are dividends taxed the same as capital gains?

may have access to dividends are taxed at the same long-term capital gains rates (0%, 15%, or 20%), but non-may have access to dividends are taxed as ordinary income. Most dividends from U.S. stocks are may have access to if you held the stock for at least 60 days around the dividend date.