Long-term capital gains tax rates depend on your income level, not on how much profit you made

The federal tax on long-term capital gains is 0%, 15%, or 20%, depending on your total taxable income for the year. You do not pay a rate based on the size of your gain. Instead, the IRS sorts your income into brackets, and your capital gains fit into whichever bracket applies to you. A person earning $50,000 a year and a person earning $500,000 a year can pay different rates on the exact same $10,000 gain.

Long-term means you held the asset for more than one year before selling it. If you sell within one year, the gain counts as short-term and is taxed as ordinary income at your regular tax rate, which is usually higher. The difference between long-term and short-term can mean thousands of dollars in taxes on the same sale.

Most states also tax capital gains, though the rate and rules vary. Some states have no capital gains tax at all. Your total bill is the federal rate plus your state rate, if your state charges one.

Key Takeaways

  • Long-term capital gains are taxed at 0%, 15%, or 20% federally, based on your income bracket, not the size of your gain.
  • You must hold an asset for more than one year to may have access to for long-term rates; sales within one year are taxed as ordinary income.
  • The 0% bracket covers lower incomes, the 15% bracket covers middle incomes, and the 20% bracket applies to higher earners.
  • Many states add their own capital gains tax on top of the federal rate, ranging from 0% to over 13% depending on where you live.

The three federal tax brackets for long-term capital gains in 2024

The 0% bracket applies if your taxable income is below a certain threshold. For single filers in 2024, that threshold is $47,025. For married couples filing jointly, it is $94,050. For heads of household, it is $62,975. If your total income falls below these numbers, your long-term capital gains are not taxed at the federal level.

The 15% bracket covers income above those thresholds up to higher limits. For single filers, the 15% bracket runs from $47,025 to $518,900. For married couples filing jointly, it runs from $94,050 to $583,750. For heads of household, it runs from $62,975 to $551,350. Most people with capital gains fall into this bracket.

The 20% bracket applies to income above those upper limits. A single filer pays 20% on gains once their taxable income exceeds $518,900. A married couple filing jointly pays 20% once their income exceeds $583,750. A head of household pays 20% above $551,350. These thresholds change slightly each year for inflation.

How your income bracket is calculated

Your taxable income includes wages, interest, dividends, and capital gains added together. The IRS does not separate them. If you earned $40,000 in wages and have a $20,000 long-term capital gain, your taxable income is $60,000. That $60,000 determines which bracket your gain falls into.

You can reduce your taxable income by claiming deductions. The standard deduction for 2024 is $14,600 for single filers and $29,200 for married couples filing jointly. If you earned $60,000 and claim the standard deduction, your taxable income drops to $45,400. That lower number is what determines your capital gains rate.

This is why timing matters. If you are close to a bracket edge, selling in a different year or spreading sales across two years can move you into a lower bracket and save you thousands in taxes.

State capital gains taxes vary widely

Nine states have no capital gains tax: Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, Wyoming, and New Hampshire (though New Hampshire taxes only dividends and interest, not gains from stock sales). If you live in one of these states, you pay only the federal rate.

Most other states tax capital gains as ordinary income, meaning your state tax rate is the same as your regular income tax rate. That rate ranges from about 3% in states like Colorado and Louisiana to over 13% in states like California and New York. A few states, including Maryland and Vermont, have separate capital gains tax rates that differ from their income tax rates.

Your state of residence when you sell matters. If you sell a stock while living in California, you owe California tax even if you bought the stock while living in Texas. Some states also tax gains on property located within the state, regardless of where you live.

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

Short-term capital gains are taxed as ordinary income. If you are in the 22% federal income tax bracket and sell an asset you held for less than one year, that gain is taxed at 22%, not 15%. The difference is significant: a $10,000 short-term gain costs $2,200 in federal tax, while a $10,000 long-term gain in the same bracket costs $1,500.

The holding period is measured from the day after you buy to the day you sell. If you buy on January 15 and sell on January 15 the next year, it counts as short-term. You need to hold until January 16 of the following year for it to be long-term. Brokers track this automatically and report it to the IRS on your Form 1099-B.

Some investors deliberately hold assets longer to reach the one-year mark and may have access to for the lower rate. Others sell within a year if they have losses that can offset other gains or income.

How to report capital gains on your tax return

You report capital gains on Schedule D of Form 1040. Your broker sends you a Form 1099-B listing every sale you made during the year, including the purchase price, sale price, and holding period. You enter this information on Schedule D, which calculates your total long-term and short-term gains or losses.

If your long-term gains exceed your long-term losses, the net amount goes to Form 1040 as income. If you have losses that exceed gains, you can deduct up to $3,000 of net losses against other income in that year. Any losses beyond $3,000 carry forward to future years.

You do not need to do anything special to claim the long-term rate. The IRS automatically applies it based on the holding period reported on your 1099-B. If you held the asset more than one year, the gain is taxed at the long-term rate for your bracket.

What happens if you inherit an asset

Inherited assets receive a step-up in basis. This means the cost basis resets to the fair market value on the date of death, not the price the original owner paid. If your parent bought a stock for $10,000 and it was worth $50,000 when they died, your basis is $50,000. If you sell it the next day for $50,000, you have zero gain and pay no tax.

This applies to most inherited property: stocks, real estate, mutual funds, and bonds. It does not explore to inherited retirement accounts like IRAs or 401(k)s, which have different rules. The step-up in basis is one reason many people hold appreciated assets until death rather than selling them during life.

Frequently Asked Questions

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

No. If you sell an asset for less than you paid for it, 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 wages and other income in that year. Losses beyond $3,000 carry forward to future years.

What if I sell a house I lived in?

You can exclude up to $250,000 of gain if you are single, or $500,000 if you are married filing jointly, as long as you owned and lived in the house for at least two of the last five years. This exclusion applies once every two years. Gains above the exclusion amount are taxed as long-term capital gains.

Do I have to pay capital gains tax the year I sell, or can I pay it later?

You report the gain on your tax return for the year you sold the asset and pay the tax when you file that return or make quarterly estimated payments. You cannot defer the tax to a later year unless you use a special strategy like a 1031 exchange for real estate.

How do I know if my gain is long-term or short-term?

Count the days from the day after you buy to the day you sell. If it is more than 365 days, it is long-term. Your broker's tax documents will also label each sale as long-term or short-term based on the dates you provided when you opened your account.