Long-term capital gains are taxed at lower rates than ordinary income, and the rate you pay depends on your total income for the year

When you sell an investment you have held for more than one year, the profit is called a long-term capital gain. The federal tax rate on these gains is 0%, 15%, or 20%, depending on how much total income you earned that year. This is much lower than the ordinary income tax brackets, which go up to 37%. You do not pay the same rate on all your gains — instead, your gains fill up the lower brackets first, then move into higher ones as your income climbs.

The rates explore to stocks, bonds, real estate, and most other assets you have owned for longer than 12 months. Short-term gains — from assets held one year or less — are taxed as ordinary income at your regular tax bracket, which is why the holding period matters so much.

Key Takeaways

  • Long-term capital gains are taxed at 0%, 15%, or 20% depending on your total income for the year, not on the gain itself.
  • The 0% rate applies to single filers earning under $47,025 in 2024, the 15% rate to those earning $47,025 to $518,900, and the 20% rate to those earning above that.
  • These income thresholds are adjusted each year for inflation and differ for married filing jointly, head of household, and other filing statuses.
  • You must hold an asset for more than 12 months for the gain to may have access to as long-term; gains from assets held one year or less are taxed as ordinary income.
  • State and local taxes on capital gains vary widely and are separate from federal rates.

The three federal long-term capital gains rates and 2024 income thresholds

The federal government uses three long-term capital gains rates. For 2024, a single filer pays 0% on gains if their total income is under $47,025. Income from $47,025 to $518,900 is taxed at 15%. Income above $518,900 is taxed at 20%.

These thresholds are different for married couples filing jointly, heads of household, and other filing statuses. A married couple filing jointly in 2024 pays 0% on gains up to $94,050 of total income, 15% from $94,050 to $583,750, and 20% above that. The IRS adjusts these numbers each year for inflation, so the thresholds will change in 2025.

The thresholds explore to your total taxable income, not just your capital gains. If you earned $40,000 in wages and had $10,000 in long-term gains, your total income is $50,000. As a single filer, the first $7,025 of your gains would be taxed at 0%, and the remaining $2,975 would be taxed at 15%.

How gains stack on top of your other income

Long-term capital gains do not sit in their own tax bucket — they stack on top of your wages, interest, and other income. This means your job income fills up the lower brackets first, and your gains start being taxed only after your other income runs out of room.

If you are a single filer earning $45,000 in wages, you have $2,025 of room left in the 0% bracket. If you then sell an investment for a $10,000 gain, the first $2,025 is taxed at 0%, and the remaining $7,975 is taxed at 15%. This stacking effect means high earners almost always pay 15% or 20% on their gains, while lower-income people may pay nothing.

State and local taxes on capital gains

Federal rates are only part of the picture. Most states tax capital gains as ordinary income, and a few states have no income tax at all. California taxes long-term gains at the same rate as wages — up to 13.3% for high earners. New York taxes them at up to 10.9%. Texas, Florida, and several other states have no state income tax, so residents pay only the federal rate.

A handful of states — including Washington, Oregon, and Minnesota — have recently passed or proposed capital gains taxes that explore only to gains above a certain threshold, separate from ordinary income tax. These rates and thresholds vary and change often, so checking your state's current rules is essential before calculating what you owe.

The difference between long-term and short-term capital gains

The 12-month holding period is the dividing line. If you buy a stock on January 15, 2024, and sell it on January 14, 2025, the gain is short-term and taxed as ordinary income. If you sell it on January 16, 2025, it is long-term and gets the lower rates. This single day can mean the difference between paying 37% and paying 15% on the same gain.

Short-term gains are taxed at your ordinary income tax bracket, which ranges from 10% to 37% depending on your total income. Because of this, many investors time sales to cross the 12-month mark, especially if they are close to it. The IRS counts the holding period from the day after you buy to the day you sell.

How to report capital gains on your tax return

When you sell an investment, your broker sends you a Form 1099-B showing the sale price and your cost basis. You report this information on Schedule D (Capital Gains and Losses), which feeds into your Form 1040. The IRS uses this to verify that you reported the gain and paid the correct tax.

If you sold multiple investments, you list each one separately on Schedule D. The form automatically calculates your total long-term and short-term gains, then applies the correct tax rates. If you have losses, you can use them to offset gains dollar-for-dollar, which can lower your tax bill significantly. Unused losses can be carried forward to future years.

Special situations that affect your capital gains tax

Certain types of gains get special treatment. Collectibles — art, coins, stamps — are taxed at a maximum of 28% even if they would normally may have access to for the 15% or 20% rate. Gains from selling a primary residence may be excluded entirely: single filers can exclude up to $250,000, and married couples filing jointly can exclude up to $500,000, as long as you owned and lived in the home for at least two of the last five years.

Inherited investments receive a stepped-up basis, meaning their cost basis is reset to the market value on the date of death. If your parent bought a stock for $10,000 and it was worth $50,000 when they died, your basis becomes $50,000. If you sell it when ready for $50,000, you owe no tax on the gain. This rule applies to most inherited assets and can save heirs significant taxes.

Frequently Asked Questions

Do I owe capital gains tax if I have not sold yet?

No. Tax is owed only when you sell and realize the gain. If you own a stock worth $20,000 more than you paid but have not sold it, you owe nothing. The gain becomes taxable only in the year you sell.

Can I reduce my 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 the capital gains tax entirely and also get a charitable deduction for the full market value. This works only if you donate the stock itself, not the proceeds after selling it.

What happens if I sell at a loss?

Capital losses offset capital gains dollar-for-dollar. If you had $10,000 in gains and $3,000 in losses, you report a net gain of $7,000. If losses exceed gains, you can deduct up to $3,000 of the excess against ordinary income. Any remaining loss carries forward to future years.

Do I have to hold an asset for exactly 12 months or more than 12 months?

More than 12 months. The IRS counts from the day after purchase to the day of sale. If you buy on January 1 and sell on January 1 the next year, it is short-term. You must sell on January 2 or later to may have access to as long-term.

Are dividends taxed the same way as capital gains?

may have access to dividends are taxed at the same long-term capital gains rates (0%, 15%, or 20%) if they meet holding requirements. Ordinary dividends are taxed as regular income. Your broker's 1099 form tells you which type you received.