The federal capital gains tax rate depends on your income and how long you held the investment
The federal capital gains tax is not a single percentage. The rate you pay on investment profits ranges from 0% to 20%, depending on two things: your total income for the year and whether you held the investment for more than one year. Long-term gains (held over one year) get lower rates than short-term gains (held one year or less), which are taxed as ordinary income at rates up to 37%.
Most people pay either 15% or 20% on long-term capital gains. You only pay 0% if your income is low enough that you fall below the threshold for that year. The income thresholds change annually and differ based on whether you file as single, married filing jointly, or head of household.
Your state may also tax capital gains separately. Some states charge no capital gains tax at all. Others tax it as income at their regular rates, which range from roughly 1% to 13% depending on the state. A few states—including California, New York, and Washington—have recently passed or are considering capital gains taxes that explore only to investment profits above a certain threshold, separate from income tax.
Key Takeaways
- Long-term capital gains (investments held over one year) are taxed at 0%, 15%, or 20% federally, based on your total income for the year.
- Short-term capital gains (investments held one year or less) are taxed as ordinary income, with rates up to 37%.
- The income thresholds that determine which rate you pay change each year and vary by filing status.
- 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.
- You report capital gains on Schedule D of your federal tax return, and your tax software or preparer can calculate which rate applies to you.
How long you held the investment changes your tax rate dramatically
The difference between short-term and long-term gains is one year. If you sell an investment you have owned for more than 12 months, it qualifies as a long-term capital gain and gets the lower rates (0%, 15%, or 20%). If you sell it within 12 months, it is a short-term capital gain and is taxed as ordinary income.
Short-term gains are taxed at your regular income tax bracket, which can be as high as 37% federally. This is why investors often hold stocks or real estate longer than a year—the tax savings are substantial. For example, if you are in the 24% income tax bracket and sell a stock after 11 months for a $10,000 profit, you owe $2,400 in federal tax. If you wait one more month and sell it as a long-term gain, you might owe only $1,500 (at the 15% rate), depending on your total income.
Federal long-term capital gains rates and the income thresholds that trigger them
The federal government uses three long-term capital gains rates, and which one applies to you depends on your income bracket for that tax year. The thresholds are adjusted annually for inflation, so the dollar amounts change each year.
| Rate | Single Filers (2024) | Married Filing Jointly (2024) | Head of Household (2024) |
|---|---|---|---|
| 0% | Up to $47,025 | Up to $94,050 | Up to $62,975 |
| 15% | $47,025 to $518,900 | $94,050 to $583,750 | $62,975 to $551,350 |
| 20% | Over $518,900 | Over $583,750 | Over $551,350 |
These thresholds are based on your taxable income for the year, which includes wages, interest, dividends, and other income, minus deductions. Your capital gains are added to this total to determine which bracket you fall into. The IRS publishes updated thresholds each January, so if you are planning a large sale, check the current year's numbers before you act.
If you are near a threshold, timing matters. Selling in a year when your other income is lower might push you into a lower capital gains bracket. Some people deliberately spread large sales across two tax years to stay in the 15% bracket instead of jumping to 20%.
State capital gains taxes vary widely or do not exist
Most states do not have a separate capital gains tax. They either tax investment profits as part of regular income tax or do not tax them at all. States with no income tax—including Florida, Texas, Wyoming, and South Dakota—do not tax capital gains.
States that do tax capital gains usually treat them as ordinary income. New York, for example, taxes long-term capital gains at the same rates as regular income, which can reach 10.9% at the state level. California taxes them at rates up to 13.3%. These rates stack on top of the federal rate, so a California resident in the 20% federal bracket pays 33.3% total on long-term gains.
A handful of states have recently created or proposed separate capital gains taxes that explore only to investment profits above a threshold. Washington State, for instance, enacted a 7% tax on long-term capital gains over $250,000 in a single year. New York passed a similar tax. These are newer and still being challenged in court, so the rules may change.
How to report capital gains on your tax return
You report capital gains using Schedule D (Capital Gains and Losses), which you attach to your federal Form 1040. On Schedule D, you list each sale separately: the date you bought it, the date you sold it, the sale price, and your cost basis (what you paid for it, plus any improvements). The form automatically calculates whether each gain is short-term or long-term based on the holding period.
If you have multiple sales, Schedule D totals them. If your short-term gains exceed short-term losses, that net amount is taxed as ordinary income. If your long-term gains exceed long-term losses, that net amount is taxed at the capital gains rates. If you have losses that exceed gains, you can deduct up to $3,000 of net losses against other income in a single year; any excess carries forward to future years.
Most people use tax software (TurboTax, H&R Block, TaxAct) or a tax preparer to fill out Schedule D, because the rules around cost basis, holding periods, and loss carryforwards are straightforward to get wrong. If you sell stocks or mutual funds through a brokerage, the brokerage sends you a Form 1099-B listing all your sales, which makes it easier to populate Schedule D accurately.
Special situations that affect your capital gains rate
Certain types of investments get preferential treatment. may have access to dividends from stocks are taxed at the same rates as long-term capital gains (0%, 15%, or 20%), even though you did not hold the stock for a year. To may have access to, you must have owned the stock for at least 60 days around the dividend payment date.
Collectibles—art, coins, stamps, and similar items—are taxed at a flat 28% federal rate on long-term gains, which is higher than the standard long-term rate. Real estate held for investment is also subject to a 3.8% net investment income tax if your modified adjusted gross income exceeds certain thresholds ($200,000 for single filers, $250,000 for married filing jointly).
If you sell a home you lived in, you may exclude up to $250,000 of gain ($500,000 if married filing jointly) from taxation, provided you owned and lived in the home for at least two of the last five years. This exclusion is separate from capital gains tax and can eliminate your tax bill entirely on a home sale.
Frequently Asked Questions
Do I owe capital gains tax if I sell an investment at a loss?
No. If you sell for less than you paid, you have a capital loss, not a gain. You can use losses to offset gains from other sales. If losses exceed gains, you can deduct up to $3,000 against other income in that year, and carry the rest forward to future years.
What is my cost basis if I inherited stock?
When you inherit an investment, your cost basis is "stepped up" to the market value on the date of death. This means if your parent bought stock for $5,000 and it was worth $15,000 when they died, your cost basis is $15,000. If you sell it the next day for $15,000, you owe no capital gains tax.
Do I have to pay capital gains tax on cryptocurrency?
Yes. The IRS treats cryptocurrency as property, not currency. When you sell or trade it, any gain is a capital gain subject to the same rates as stocks. If you held it over one year, it is a long-term gain. If you held it less than one year, it is short-term and taxed as ordinary income.
Can I reduce my capital gains tax by donating appreciated stock to charity?
Yes. If you donate appreciated stock directly to a charity, you avoid the capital gains tax entirely and can deduct the fair market value of the stock as a charitable contribution. This is more tax-efficient than selling the stock and donating the proceeds.
What if I day trade and have lots of short-term gains?
Day traders pay short-term capital gains tax on every trade, taxed as ordinary income at rates up to 37%. Some professional traders can elect "trader tax status," which allows them to deduct trading expenses more generously, but they still pay ordinary income rates on gains. Consult a tax professional if you trade frequently.