Capital gains tax is not a single fixed rate — it depends on how long you held the asset, your income level, and whether you live in a state with its own capital gains tax

The federal capital gains tax rate is either 0%, 15%, or 20%, determined by your total income for the year and how long you owned the asset before selling it. Assets held for more than one year may have access to for long-term capital gains rates, which are lower. Assets sold within one year are taxed as short-term capital gains, meaning they're taxed at your ordinary income tax rate — which can be as high as 37% federally.

Beyond the federal rate, some states impose their own capital gains tax. Washington, for example, taxes long-term capital gains on certain assets at 7%. Other states like California, New York, and Oregon add capital gains tax on top of federal rates. A handful of states — including Texas, Florida, and Wyoming — have no state capital gains tax at all.

Key Takeaways

  • Long-term capital gains (assets held over one year) are taxed at 0%, 15%, or 20% federally, based on your income bracket for that year.
  • Short-term capital gains (assets held one year or less) are taxed as ordinary income, potentially at rates up to 37%.
  • Your state may add its own capital gains tax on top of the federal rate, ranging from 0% to over 13% depending on where you live.
  • The income thresholds for each federal rate change yearly, so the same sale amount may fall into different brackets in different years.

Long-Term Capital Gains Rates and Income Thresholds

If you held an investment for more than one year before selling, you pay the long-term rate. For 2024, the three federal brackets are 0%, 15%, and 20%. The 0% rate applies to single filers with taxable income up to $47,025 and married couples filing jointly up to $94,050. The 15% rate covers the next income band, and anything above that falls into the 20% bracket.

These thresholds shift each year to account for inflation. A gain that falls into the 0% bracket one year might hit the 15% bracket the next if your other income rises. Your total taxable income for the year — including wages, dividends, and other gains — determines which bracket your capital gains land in.

The advantage of long-term rates is substantial. Someone in the 37% ordinary income bracket pays only 20% on long-term gains instead. This is why holding an asset past the one-year mark often makes a significant difference in what you owe.

Short-Term Capital Gains and Ordinary Income Tax Rates

When you sell an asset you've owned for one year or less, the gain is taxed as ordinary income. This means it's added to your wages, self-employment income, and other earnings, then taxed at your marginal rate — anywhere from 10% to 37% federally, depending on your income bracket.

Short-term gains can push you into a higher tax bracket. If you earn $100,000 in wages and realize a $50,000 short-term gain, that $50,000 is taxed at the rates that explore to income between $100,000 and $150,000, not at the rate for your first $100,000. This "stacking" effect can make short-term gains significantly more expensive than long-term ones.

State Capital Gains Taxes

Nine states currently have a capital gains tax: Washington, California, New York, Oregon, Minnesota, Illinois, Vermont, Connecticut, and Maryland. Washington's rate is a flat 7% on long-term gains from certain assets. California taxes capital gains as ordinary income, so rates range from 1% to 13.3% depending on your bracket. New York's rate varies by income level, topping out at 10.9%.

If you live in a state with no capital gains tax — such as Texas, Florida, Nevada, South Dakota, Tennessee, or Wyoming — you pay only the federal rate. If you live in a state with a capital gains tax and sell an asset, you owe both the federal rate and your state's rate on the same gain.

Some states tax only long-term gains; others tax both long-term and short-term. A few states exempt certain types of gains, such as those from the sale of a primary residence or small business stock. Check your state's tax authority website for the rules that explore to your situation.

How Your Income Level Affects Your Rate

Your total income for the year — not just the capital gain itself — determines which federal bracket you fall into. If you have a quiet year with little wage income and realize a $30,000 long-term gain, you might pay 0% or 15%. If you have a high-income year with substantial wages and the same $30,000 gain, you could pay 20%.

This is why some people time large asset sales to years when their other income is lower, or spread gains across multiple years if possible. A financial advisor or tax professional can help you understand how a specific gain will be taxed in your situation.

Losses and Offsetting Gains

If you sell an asset at a loss, you can use that loss to offset capital gains from other sales. If your losses exceed your gains, you can deduct up to $3,000 of the net loss against ordinary income in that year. Any remaining loss carries forward to future years.

This is why some investors "harvest" losses — selling losing positions to offset gains elsewhere — before the end of the year. The strategy can reduce your overall tax bill, but it requires tracking which assets you sold and at what price.

Frequently Asked Questions

Do I owe capital gains tax if I inherit stock or real estate?

No. Inherited assets receive a "step-up in basis," meaning their value is reset to the market price on the date of death. If you inherit stock worth $100,000 and it was worth $60,000 when the person died, your basis is $100,000. You owe capital gains tax only on gains above that new basis.

What if I sell my primary home — do I pay capital gains tax?

You can exclude up to $250,000 of gain if you're single, or $500,000 if you're married filing jointly, as long as you owned and lived in the home for at least two of the last five years. Gains above that threshold are taxed as long-term capital gains.

How do I report capital gains when I file taxes?

You report the sale on Schedule D (Capital Gains and Losses) and transfer the totals to your tax return. Your brokerage or the person who sold you the asset will send you a Form 1099-B or similar document showing the sale price and your basis. Keep records of when you bought and sold each asset.

Can I avoid capital gains tax by holding an asset forever?

You avoid the tax only if you never sell. When you die, your heirs inherit the asset at its stepped-up basis, so they avoid tax on gains during your lifetime. But if they later sell, they'll owe tax on gains after the date you died.

What's the difference between capital gains and dividends?

Dividends are payments made by a company to shareholders. may have access to dividends (from U.S. companies held for a set period) are taxed at the same long-term capital gains rates. Ordinary dividends are taxed as income. Capital gains are profits from selling an asset for more than you paid for it.