The federal long-term capital gains tax rate depends on your income level

The long-term capital gains tax rate is the tax you pay on profit from selling an investment you held for more than one year. The federal rate is not a single number—it is 0%, 15%, or 20%, depending on how much total income you earned that year. These rates are lower than the ordinary income tax rates, which is why holding an investment longer than a year can save you money in taxes.

Your income level determines which rate applies to you. The income thresholds change each year and differ based on whether you file as single, married filing jointly, head of household, or married filing separately. For example, in 2024, a single filer with taxable income up to $47,025 pays 0% on long-term gains. Income between $47,025 and $518,900 is taxed at 15%. Income above $518,900 is taxed at 20%. These numbers shift annually based on inflation.

State and local taxes on capital gains vary widely. Some states tax capital gains as ordinary income, some tax them at a lower rate, and a few states do not tax them at all. You need to check your own state's rules to know your total tax burden.

Key Takeaways

  • Federal long-term capital gains rates are 0%, 15%, or 20% depending on your total income for the year, not on the size of the gain itself.
  • You must hold an investment for more than one year for the gain to may have access to as long-term; selling before that triggers the higher ordinary income tax rate.
  • The income thresholds that determine which rate applies change every year and depend on your filing status.
  • State and local taxes on capital gains can add significantly to your federal bill and range from 0% to over 13% depending on where you live.

How the three federal tax brackets work

The 0% rate applies to the lowest earners. In 2024, single filers with taxable income up to $47,025 pay no federal tax on long-term gains. For married couples filing jointly, the threshold is $94,050. This bracket exists to may support that people with modest income do not lose money to taxes when they sell an investment at a small profit.

The 15% rate covers most middle-income earners. For single filers in 2024, this applies to income between $47,025 and $518,900. For married couples filing jointly, it is $94,050 to $583,750. This is the most common bracket and applies to most people who own stocks or mutual funds.

The 20% rate applies to high-income earners. In 2024, single filers with taxable income above $518,900 pay 20% on long-term gains. For married couples filing jointly, the threshold is $583,750. Additionally, high earners may owe a 3.8% net investment income tax on top of the capital gains rate, bringing the total federal rate to 23.8%.

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

A long-term capital gain comes from selling an investment you owned for more than one year. A short-term capital gain comes from selling an investment you owned for one year or less. The holding period is measured from the date you bought it to the date you sold it.

Short-term capital gains are taxed as ordinary income, meaning they use the same tax brackets as your wages or salary. Those brackets are much higher—up to 37% at the top—compared to the 20% maximum on long-term gains. This is why investors often hold stocks longer than a year if they can: the tax savings can be substantial.

For example, if you bought a stock for $5,000 and sold it eight months later for $6,000, your $1,000 gain is short-term and taxed as ordinary income. If you sold that same stock after 13 months, the $1,000 gain is long-term and taxed at 0%, 15%, or 20% depending on your income level.

How state and local taxes affect your total rate

Federal tax is only part of the picture. Your state and local government may also tax capital gains, and the rules vary dramatically.

Some states tax long-term capital gains at the same rate as ordinary income. California, for example, taxes capital gains as regular income, so the state rate can reach 13.3% on top of the federal rate. New York taxes capital gains as ordinary income as well, with a top state rate of 10.9%. Other states, like Texas, Florida, and Washington, do not tax capital gains at all.

A few states have created special lower rates for capital gains. Washington state recently passed a 7% tax on long-term capital gains above $250,000. Some states tax capital gains only for residents, while others tax nonresidents on gains from property located in the state. Your city or county may also impose a local income tax that applies to capital gains.

How to calculate your capital gains tax

To find your federal tax on a long-term capital gain, first determine your total taxable income for the year, including wages, interest, dividends, and the capital gain itself. Then look up which 0%, 15%, or 20% bracket you fall into based on that total. The gain is taxed only at the rate for your bracket—you do not pay the higher rate on the entire gain.

Here is a concrete example. Suppose you are single, earned $40,000 in wages, and sold a stock for a $10,000 long-term gain. Your total taxable income is $50,000. In 2024, the 0% bracket for single filers goes up to $47,025, so the first $7,025 of your gain is taxed at 0%. The remaining $2,975 of the gain falls into the 15% bracket, so you owe $446.25 in federal tax on the gain. Your state and local taxes would be added on top of this.

If you have losses from other investments, you can use them to reduce your capital gains. If your losses exceed your gains, you can deduct up to $3,000 of the net loss against ordinary income in that year, and carry forward any remaining loss to future years.

Special situations that affect capital gains tax

Certain types of investments receive preferential treatment. Collectibles—such as art, coins, and stamps—are taxed at a maximum 28% federal rate on long-term gains, which is higher than the standard 20%. may have access to small business stock held for more than five years may be partially excluded from tax under Section 1202 of the tax code, though this is complex and requires professional guidance.

Real estate has its own rules. If you sell a home and meet the requirements—you owned it and lived in it 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 applies once every two years. Gains above the exclusion amount are taxed as long-term capital gains.

Inherited investments receive a "step-up in basis," meaning the tax basis resets to the market value on the date of death. If you inherit stock worth $100,000 and sell it a month later for $105,000, you owe tax only on the $5,000 gain, not on the entire $105,000 increase from the original purchase price. This can result in significant tax savings.

How inflation affects your capital gains calculation

Your capital gain is the difference between what you paid for an investment and what you sold it for. If you bought a stock for $1,000 in 2010 and sold it for $2,000 in 2024, your gain is $1,000, even though some of that increase may straightforward reflect inflation rather than real growth.

The federal tax system does not adjust for inflation when calculating capital gains. Some states and countries do allow inflation adjustments, but the federal government does not. This means that in periods of high inflation, you may owe tax on gains that do not represent real economic profit. This is one reason some investors use tax-loss harvesting—selling losing investments to offset gains—to manage their tax bills.

Frequently Asked Questions

Do I owe capital gains tax if I sell an investment at a loss?

No, you do not owe tax on a loss. Instead, you can use the loss to reduce any capital gains you have that year. If losses exceed gains, you can deduct up to $3,000 of the net loss against your ordinary income. Any remaining loss carries forward to future years.

What if I do not know when I bought an investment?

If you cannot find the original purchase date or price, contact your broker or the company that holds the investment. They maintain records going back many years. If records are truly unavailable, you may need to work with a tax professional to reconstruct the basis, which can be complicated and costly.

Are dividends taxed the same way as capital gains?

may have access to dividends—those from U.S. corporations or may have access to foreign corporations held for a minimum period—are taxed at the same 0%, 15%, or 20% rates as long-term capital gains. Non-may have access to dividends are taxed as ordinary income. Check your brokerage statement to see which type you received.

Do I have to report capital gains if they are small?

Yes, you must report all capital gains on your tax return, regardless of size. The IRS receives reports from brokers about sales you make, so unreported gains are likely to be caught. Even small gains should be included on Schedule D of your tax return.

Can I reduce my capital gains tax by donating the stock instead of selling it?

Yes. If you donate appreciated stock directly to a may have access to charity, you avoid the capital gains tax entirely and can deduct the fair market value of the stock as a charitable contribution. This is often more tax-efficient than selling the stock and donating the proceeds.