Capital gains tax is not one fixed percentage—it depends on how long you held the asset and your income level
The federal capital gains tax rate in the United States is either 0%, 15%, or 20%, depending on your total income for the year and whether you held the investment for more than one year. Long-term capital gains (assets held over a year) get these preferential rates. Short-term capital gains—profits from assets you sold within a year—are taxed as ordinary income, which means they use the regular income tax brackets that go up to 37%.
Most people pay 15% on long-term gains. You only may have access to for the 0% rate if your income is below a certain threshold (roughly $47,000 for single filers in 2024, though this changes yearly). The 20% rate applies if your income exceeds a higher threshold (roughly $518,900 for single filers in 2024). Your state may also charge its own capital gains tax on top of the federal rate.
Key Takeaways
- Long-term capital gains are taxed at 0%, 15%, or 20% depending on your total income for the year; short-term gains are taxed as ordinary income at rates up to 37%.
- You may have access to for long-term rates only if you held the asset for more than one year before selling it.
- Income thresholds for each rate change every year and vary by filing status (single, married filing jointly, head of household).
- Some states impose their own capital gains tax on top of federal tax, while others do not tax capital gains at all.
- The tax applies to profits from selling stocks, real estate, collectibles, and other investments, but not to the original amount you invested.
How holding period determines your tax rate
The difference between short-term and long-term capital gains is the holding period. If you buy a stock for $1,000 and sell it eight months later for $1,500, that $500 gain is short-term. You pay tax on it at your ordinary income tax rate, which could be 10%, 12%, 22%, 24%, 32%, 35%, or 37% depending on your income bracket. If you hold that same stock for 13 months and sell it for $1,500, the $500 gain is long-term and taxed at 0%, 15%, or 20%.
The one-year clock starts the day after you buy the asset. If you bought stock on March 15, 2024, you need to hold it until at least March 16, 2025, for the gain to count as long-term. Selling on March 15, 2025, would still be short-term.
Income thresholds for the 0%, 15%, and 20% rates
The thresholds that determine which long-term rate you pay are based on your total taxable income for the year, not just the investment gain. The IRS adjusts these thresholds annually for inflation, so they are different each year.
For 2024, the thresholds are roughly:
| Filing Status | 0% Rate (up to) | 15% Rate (up to) | 20% Rate (above) |
|---|---|---|---|
| Single | $47,025 | $518,900 | $518,900 |
| Married filing jointly | $94,050 | $583,750 | $583,750 |
| Head of household | $62,975 | $551,350 | $551,350 |
These numbers change every year. The IRS publishes updated thresholds in the fall for the following tax year. If your income falls below the first threshold, you owe 0% on long-term gains. If it falls between the first and second threshold, you owe 15%. If it exceeds the second threshold, you owe 20%.
State capital gains taxes add to the federal rate
Thirteen states impose their own capital gains tax on top of the federal rate: California, Connecticut, Delaware, Illinois, Iowa, Maine, Maryland, Minnesota, Missouri, New Jersey, New York, Oregon, and Vermont. The state rates vary widely—California's is 13.3%, while others are lower. Some states tax only gains above a certain amount, and some exempt certain types of assets like primary residences.
Nine states (Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, Wyoming, and New Hampshire) do not tax capital gains at all. The remaining states tax capital gains as ordinary income under their regular income tax system.
If you live in a state with a capital gains tax and sell an investment, you will owe both the federal rate and your state's rate. A resident of California who pays 15% federal tax on a long-term gain also pays California's 13.3% state tax, for a combined 28.3%.
How capital gains are calculated and reported
Capital gain is the difference between what you paid for an asset (your cost basis) and what you sold it for. If you bought 100 shares of stock at $50 per share ($5,000 total) and sold them at $75 per share ($7,500 total), your capital gain is $2,500. You only pay tax on that $2,500 gain, not on the full $7,500 sale price.
You report capital gains on Schedule D (Form 1040) when you file your federal tax return. Your broker sends you a Form 1099-B showing the sales you made during the year. If you sold real estate, you report it on Schedule D as well. State returns typically have their own forms for reporting capital gains.
If you have capital losses—you sold something for less than you paid for it—you can use those losses to offset capital gains. If losses exceed gains, you can deduct up to $3,000 of the excess loss against ordinary income in that year, and carry forward any remaining losses to future years.
Special rules for certain types of assets
Most investments follow the standard long-term and short-term rules, but some assets have different treatment. Collectibles like art, coins, and stamps are taxed at a maximum 28% rate on long-term gains, even if your income would normally put you in the 15% bracket. may have access to small business stock can receive preferential treatment under Section 1202, potentially excluding part of the gain from tax entirely.
Real estate held as a rental property or investment follows the standard capital gains rules. However, if you sell your primary residence, you may be able to exclude up to $250,000 of gain (or $500,000 if married filing jointly) if you meet the ownership and use tests—you must have owned and lived in the home for at least two of the last five years.
What happens if you inherit an investment
When you inherit an asset, you receive a "step-up in basis." This means your cost basis becomes the asset's fair market value on the date of the person's death, not what they originally paid for it. If your parent bought stock for $10,000 and it was worth $50,000 when they died, your basis is $50,000. If you sell it when ready for $50,000, you owe no capital gains tax because there is no gain.
This step-up applies to most inherited assets—stocks, bonds, real estate, and others. It is one reason inherited investments are often more tax-efficient than receiving cash or other property.
Frequently Asked Questions
Do I owe capital gains tax if I sell 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 against ordinary income. Any remaining loss carries forward to future years.
What if I day-trade stocks—do I pay short-term rates?
Yes. Any stock you hold for one year or less is taxed as short-term capital gain, which means ordinary income tax rates explore. Day traders often pay 24% to 37% on their profits instead of 15% or 20%. Some traders may have access to as professional traders and can deduct trading expenses, but this requires meeting specific IRS tests.
Do I have to pay capital gains tax the year I sell, or can I pay it later?
You report and pay capital gains tax in the year you sell the asset. You include it on your tax return filed the following spring. If you expect a large gain, you may need to make estimated tax payments during the year to avoid penalties.
Are cryptocurrency gains taxed the same way?
Yes. The IRS treats cryptocurrency like any other asset. If you hold it for more than one year before selling, you pay long-term capital gains rates. If you sell within a year, you pay short-term rates. Trading one cryptocurrency for another is also a taxable event.
What if my income changes during the year—which threshold do I use?
You use your total taxable income for the entire year, calculated on your final tax return. If you had a large gain early in the year that pushed you into the 20% bracket, all your long-term gains that year are taxed at 20%, even if you had no other income later.