Long-term capital gains tax rates are 0%, 15%, or 20%, depending on your total income for the year
The rate you pay on profit from selling stocks, real estate, or other investments held over a year depends on your taxable income — not on how much you made from the sale itself. The IRS sorts taxpayers into three brackets. If your income falls in the lowest bracket, you pay nothing. If it falls in the middle bracket, you pay 15%. If it falls in the highest bracket, you pay 20%. These rates are lower than the rates on ordinary income (wages, interest, short-term gains) because Congress taxes long-term holdings more lightly.
The income thresholds that determine which bracket you land in change every year and differ based on whether you file as single, married filing jointly, head of household, or married filing separately. For 2024, the 15% bracket starts around $47,000 for single filers and $94,000 for married couples filing jointly, but you should check the current year's IRS tables because these numbers shift annually.
Your total taxable income — wages plus investment gains plus other sources — is what matters. If you earned $50,000 in wages and sold an investment for a $30,000 gain, your taxable income is $80,000, and the rate you pay on that $30,000 depends on where $80,000 lands in the brackets for your filing status.
Key Takeaways
- Long-term capital gains rates are 0%, 15%, or 20% based on your total taxable income for the year, not on the size of the gain alone.
- A gain qualifies as long-term only if you held the asset for more than one year; gains on assets held one year or less are taxed as ordinary income at higher rates.
- Income thresholds for each bracket change annually and vary by filing status (single, married filing jointly, head of household, or married filing separately).
- You report long-term gains on Schedule D (Form 1040) and must provide the purchase date, sale date, and cost basis for each asset sold.
- State and local taxes on capital gains are separate from federal rates and vary by location; some states tax capital gains as ordinary income, others do not tax them at all.
How the IRS defines a long-term gain versus a short-term gain
The holding period is the dividing line. If you buy a stock on January 15, 2024, and sell it on January 16, 2025, you held it for more than one year, so the gain is long-term. If you sell it on January 15, 2025, you held it for exactly one year, which does not count — the IRS requires more than one year, so this gain is short-term.
Short-term gains are taxed at your ordinary income tax rate, which ranges from 10% to 37% depending on your income bracket. That is why the holding period matters so much: the difference between selling one day too early and one day too late can mean paying 37% instead of 20% on the same gain.
The holding period starts the day after you purchase the asset and ends on the day you sell it. If you inherit an asset, the holding period rules are different — inherited assets receive what is called a "stepped-up basis," and the holding period resets, but that is a separate topic.
The three federal long-term capital gains brackets for 2024
| Filing Status | 0% Bracket | 15% Bracket | 20% Bracket |
|---|---|---|---|
| Single | Up to $47,025 | $47,025 to $518,900 | Over $518,900 |
| Married Filing Jointly | Up to $94,050 | $94,050 to $583,750 | Over $583,750 |
| Head of Household | Up to $62,975 | $62,975 to $551,350 | Over $551,350 |
| Married Filing Separately | Up to $47,025 | $47,025 to $291,875 | Over $291,875 |
These thresholds are for 2024 and will increase slightly in 2025 to account for inflation. The IRS publishes updated brackets in late fall each year. Your taxable income — not your gross income — determines which bracket applies. Taxable income is what remains after you subtract the standard deduction (or itemized deductions if you itemize) and any other deductions you claim.
If you are in the 0% bracket, you owe no federal tax on long-term gains, but you still must report them on your tax return. This bracket is often used by retirees with low income or by people who had a year with unusually low earnings.
How state and local taxes affect what you actually pay
Federal tax is only part of the picture. Most states tax capital gains, and some cities do as well. The treatment varies widely. Some states tax long-term gains at the same rate as ordinary income (which can be 5% to 13% depending on the state). Others tax capital gains at a lower rate or not at all.
California, for example, taxes long-term capital gains as ordinary income at rates up to 13.3%. New York taxes them at rates up to 10.9%. But states like Texas, Florida, and Wyoming have no state income tax at all, so residents pay only the federal rate. A few states — including Iowa and Vermont — have special lower rates for capital gains.
If you live in one state but sell an asset located in another state, the rules about which state can tax the gain depend on the type of asset and the states involved. Real estate is usually taxed by the state where it is located. Stocks and bonds are usually taxed by the state where you live. This is a situation where a tax professional's input is worth the cost.
What documents you need to report capital gains on your tax return
You report long-term capital gains on Schedule D (Form 1040), which you attach to your main tax return. For each asset you sold, you need the purchase date, the sale date, the price you paid (your cost basis), and the price you received. If you sold shares of a mutual fund or stock, your brokerage will send you a Form 1099-B showing these details.
If you bought an asset years ago and do not remember the original purchase price, you can sometimes find it in old statements or brokerage records. If the asset was inherited, you use the value on the date of death as your cost basis, not what the original owner paid. If you cannot locate the original cost, you may need to estimate it or consult a tax professional.
Keep records of all sales for at least three years after you file your return. The IRS can audit back further if it suspects underreporting, so keeping records longer is safer. Digital copies of brokerage statements, purchase confirmations, and sale confirmations are sufficient.
How to calculate your cost basis and adjusted basis
Cost basis is what you paid for the asset, including any fees or commissions. If you bought 100 shares of a stock at $50 per share and paid a $10 commission, your cost basis is $5,010 (not $5,000). If you bought the asset over time in multiple purchases, you need to track each lot separately or use an averaging method.
Adjusted basis is your cost basis plus or minus certain changes. If you received a dividend that you reinvested in more shares, your adjusted basis increases. If you claimed a depreciation deduction on a rental property, your adjusted basis decreases. Your gain or loss is the sale price minus your adjusted basis.
When you sell only part of a holding — say, 50 of 100 shares — you must specify which shares you are selling. The most common methods are first-in-first-out (FIFO), which assumes you sell the oldest shares first, and specific identification, which lets you choose which shares to sell. Specific identification can lower your tax if you sell the shares with the highest cost basis. Your brokerage can help you track this.
Special situations: collectibles, real estate, and net investment income tax
Most long-term capital gains follow the 0%, 15%, or 20% structure, but some assets have different rules. Collectibles — art, antiques, coins, stamps — are taxed at a maximum rate of 28% on long-term gains, even if your income would otherwise put you in the 15% or 0% bracket. Precious metals held as collectibles follow the same rule.
Real estate has its own wrinkle. If you sell a rental property or investment real estate, you may owe tax on depreciation you claimed in prior years at a rate of 25%, separate from the long-term capital gains rate on the remaining gain. 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.
If your modified adjusted gross income exceeds certain thresholds — $200,000 for single filers, $250,000 for married couples filing jointly — you may also owe a 3.8% net investment income tax on your capital gains. This is a separate tax on top of the federal capital gains rate and applies to the lesser of your net investment income or the amount by which your modified adjusted gross income exceeds the threshold.
Frequently Asked Questions
Do I have to pay capital gains tax if I reinvest the money?
Yes. The tax is based on the gain itself, not on what you do with the proceeds. If you sell an investment for a $10,000 profit and immediately buy another investment with that money, you still owe tax on the $10,000 gain. Reinvesting does not defer or eliminate the tax.
What if I sold an investment at a loss?
You can use capital losses to offset capital gains. If you had $15,000 in long-term gains and $5,000 in long-term losses, you report a net gain of $10,000. If losses exceed gains, you can deduct up to $3,000 of the excess loss against ordinary income in a single year, and carry forward any remaining loss to future years.
How do I know if my gain is long-term or short-term if I bought and sold multiple times?
Each purchase and sale is tracked separately. If you bought shares on three different dates and sold them all on the same date, each lot is treated based on its own holding period. Your brokerage statement or Form 1099-B will show the holding period for each lot, or you can calculate it yourself using the purchase and sale dates.
Can I reduce my capital gains tax by donating appreciated assets to charity?
Yes. If you donate appreciated securities or real estate directly to a may have access to charity, you avoid the capital gains tax on the appreciation and can deduct the full fair market value as a charitable contribution. You must itemize deductions to benefit from this, and the asset must have been held long-term. This strategy is often more tax-efficient than selling and donating the proceeds.
What if I moved to a different state after selling an investment?
You generally owe tax to the state where you lived when you sold the asset, not where you live now. If you moved from a high-tax state to a no-income-tax state, you still owe tax to your former state on gains from sales while you were a resident there. Some states have specific rules about when you are considered to have left, so check your former state's rules if this applies to you.