Capital gains tax rates depend on how long you held the asset and your income level

Capital gains tax is the tax you pay when you sell something for more than you paid for it — a stock, rental property, or piece of land. The rate you pay is not the same as your regular income tax rate. The federal government taxes long-term gains (assets held over a year) at 0%, 15%, or 20%, depending on your total income. Short-term gains (held a year or less) are taxed like ordinary income, which means your regular tax bracket applies.

Your state may also charge capital gains tax on top of the federal rate. Some states charge a flat percentage; others tie it to your income bracket. A few states do not tax capital gains at all. The total you owe depends on which state you live in, how much you earned that year, and whether the gain is long-term or short-term.

Key Takeaways

  • Long-term capital gains (held over one year) are taxed at 0%, 15%, or 20% federally, based on your income level, not your regular tax bracket.
  • Short-term capital gains (held one year or less) are taxed at your ordinary income tax rate, which can be as high as 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 date you bought and sold an asset determines whether a gain is short-term or long-term, and this makes a large difference in what you owe.

Long-term capital gains rates: 0%, 15%, or 20%

If you held an asset for more than one year before selling it, the federal government taxes the profit at one of three rates: 0%, 15%, or 20%. Which rate applies depends on your total taxable income for the year, not on the size of the gain itself.

The 0% rate applies to single filers with income up to roughly $47,000 and married filers filing jointly with income up to roughly $94,000 (these thresholds change each year). The 15% rate covers the middle range — single filers from roughly $47,000 to $518,000, and married filers from roughly $94,000 to $583,000. The 20% rate applies to anyone above those thresholds. These are 2024 figures; the IRS adjusts them annually for inflation.

The key point: your long-term capital gains rate is determined by your total income bracket, not by how much profit you made on the sale. If you are in the 15% bracket and sell a stock for a $100,000 gain, you pay 15% on that gain, not your ordinary income tax rate.

Short-term capital gains: taxed as ordinary income

If you held an asset for one year or less before selling it, the profit is a short-term capital gain. The federal government taxes this at your ordinary income tax rate — the same rate that applies to your salary or wages. This can range from 10% to 37%, depending on your income level and filing status.

Short-term gains are treated like regular income because the IRS considers them closer to business activity than to long-term investment. If you buy and sell a stock in three months and make $5,000, that $5,000 is added to your other income for the year, and you pay tax on it at whatever bracket that total income puts you in.

State capital gains taxes vary widely

Most states do not have a separate capital gains tax, but some do. California, for example, taxes long-term capital gains at the same rate as ordinary income (up to 13.3%). New York charges up to 6.85% on capital gains. Washington State has a 7% tax on long-term gains over $250,000. Other states like Texas, Florida, and Nevada do not tax capital gains at all.

A few states tax only certain types of gains. Washington, for instance, taxes long-term gains on stocks and bonds but not on real estate or business property. Oregon taxes capital gains over $5,000 at a rate tied to your income bracket. The rules are different in each state, so you need to check your own state's rules or speak with a tax professional who knows your state's law.

How to calculate what you owe

Start by figuring out your gain: the sale price minus what you originally paid, minus any selling costs like broker fees or commissions. Next, determine whether it is short-term (held one year or less) or long-term (held over one year). The holding period is measured from the date you bought it to the date you sold it.

For long-term gains, look up your income bracket for the year and find the corresponding long-term capital gains rate (0%, 15%, or 20%). For short-term gains, use your ordinary income tax bracket. Then add any state capital gains tax that applies where you live. The result is your total tax rate on that gain.

Example: You sell a stock you bought three years ago for a $10,000 gain. Your income for the year puts you in the 15% long-term capital gains bracket. You owe $1,500 in federal tax. If you live in a state with a 5% capital gains tax, you owe another $500, for a total of $2,000.

When you must report capital gains

You report capital gains on your federal tax return using Schedule D (Form 1040). If you sold stocks, mutual funds, or bonds, your broker sends you a Form 1099-B showing the sale price and date. If you sold real estate, you report it on Schedule D as well. You must report all gains, even small ones, and even if you did not receive a 1099 form.

Some gains are not taxable. If you sold your primary home and lived in it for at least two of the last five years, you can exclude up to $250,000 of gain (or $500,000 if married filing jointly). Inherited assets get a "step-up in basis," meaning the tax is calculated from the date of death, not the original purchase date — often resulting in little or no tax. Losses can offset gains, reducing your total tax.

Frequently Asked Questions

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

No federal tax is owed on a loss, but you can use the loss to offset other 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.

What is the difference between long-term and short-term capital gains?

Long-term gains (held over one year) are taxed at 0%, 15%, or 20% based on income. Short-term gains (held one year or less) are taxed at your ordinary income rate, which is usually much higher. The holding period is measured from purchase date to sale date.

Do I have to pay capital gains tax on inherited property?

Inherited assets receive a step-up in basis, meaning the tax basis resets to the property's value on the date of death. If you sell it shortly after inheriting it, you typically owe little or no capital gains tax, even if the original owner bought it decades earlier for much less.

Can I avoid capital gains tax by not selling?

Yes. Capital gains tax is only owed when you sell or dispose of an asset. If you hold an investment indefinitely, no tax is due. However, some assets like stocks in taxable accounts generate dividends or interest that are taxed annually, regardless of whether you sell.

Do I owe capital gains tax in the year I sell, or can I defer it?

You owe it in the year you sell. There is no standard way to defer capital gains tax, though certain investments like 1031 exchanges (for real estate) or opportunity zones allow deferral under specific conditions. A tax professional can explain whether any of these explore to your situation.