The federal capital gains tax rate depends on how long you held the asset and your income level
When you sell an investment or property for more than you paid for it, the profit is called a capital gain. The federal government taxes this profit, but the rate you pay is not the same as your regular income tax rate. The rate depends on two things: whether you held the asset for more than one year (long-term) or one year or less (short-term), and your total taxable income for that year.
Short-term capital gains are taxed as ordinary income — at the same rate as your salary or wages. Long-term capital gains have lower rates: 0%, 15%, or 20%, depending on your income bracket. Most people pay 15%. States may also tax capital gains, and the rate varies by state.
Key Takeaways
- Short-term capital gains (assets held one year or less) are taxed at your regular income tax rate, which can be as high as 37% federally.
- Long-term capital gains (assets held more than one year) are taxed at 0%, 15%, or 20% depending on your income, and most taxpayers fall into the 15% bracket.
- The income thresholds for each long-term rate change every year and differ based on whether you file as single, married filing jointly, or head of household.
- State capital gains taxes range from 0% to over 13% depending on where you live, and some states have no capital gains tax at all.
- You report capital gains on Schedule D of your tax return, and you must track the purchase price and sale price of every asset you sell.
Long-term capital gains rates and 2024 income thresholds
If you held an investment or property for more than one year before selling it, you may have access to for long-term capital gains rates. The rate you pay depends on your total taxable income for the year. The thresholds shift annually and vary by filing status.
For 2024, the long-term capital gains brackets are:
| Rate | Single Filers | Married Filing Jointly | Head of Household |
|---|---|---|---|
| 0% | Up to $47,025 | Up to $94,050 | Up to $62,700 |
| 15% | $47,025 to $518,900 | $94,050 to $583,750 | $62,700 to $551,350 |
| 20% | Over $518,900 | Over $583,750 | Over $551,350 |
These thresholds are indexed for inflation and change each year. The IRS publishes updated brackets in the fall for the following tax year. Your total taxable income — not just the capital gain — determines which bracket you fall into.
Short-term capital gains and ordinary income tax rates
If you sold an asset you owned for one year or less, the gain is taxed as ordinary income. This means it is added to your wages, salary, and other income, and taxed at your regular income tax bracket.
Federal ordinary income tax rates for 2024 range from 10% to 37%, depending on your total income and filing status. Because short-term gains are taxed at these higher rates, many investors try to hold assets longer than one year to may have access to for the lower long-term rates. The difference can be substantial — a $10,000 gain taxed at 37% costs $3,700, while the same gain at 15% costs $1,500.
State capital gains taxes vary widely
In addition to federal tax, most states tax capital gains as part of their regular income tax. Some states tax capital gains at the same rate as ordinary income; others have separate rates. A few states have no capital gains tax at all.
State rates range from 0% (in states like Texas, Florida, and Wyoming) to over 13% (in states like California and New York). If you live in a high-tax state and sell a large asset, state tax can add significantly to your bill. Some states also have special rules — for example, California taxes capital gains as ordinary income with no preferential rate, while Washington has a capital gains tax of 7% on long-term gains over $250,000.
How to calculate and report capital gains
To calculate your capital gain, subtract your cost basis (what you paid for the asset, including fees) from the sale price. The difference is your gain or loss. If you sold multiple assets during the year, you calculate the gain or loss for each one separately.
You report all capital gains and losses on Schedule D of your federal tax return (Form 1040). You must list each transaction: the asset, the date you bought it, the date you sold it, your cost basis, the sale price, and whether it was long-term or short-term. If you have losses, you can use them to offset gains. If losses exceed gains, you can deduct up to $3,000 of the excess loss against ordinary income in that year; any remaining loss carries forward to future years.
Keeping good records is essential. Save purchase receipts, sale confirmations, and any documents showing cost basis adjustments (like reinvested dividends or stock splits). If you cannot prove your cost basis, the IRS may assume you bought the asset for zero, making your entire sale price a gain.
Special situations and exceptions
Some capital gains receive preferential treatment. If you sell a 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. Collectibles like art and coins are taxed at a maximum rate of 28%, even if they would otherwise may have access to for the 20% long-term rate. Gains on certain small business stock may may have access to for a 50% exclusion under Section 1202.
If you inherit an asset, you receive a step-up in basis, meaning your cost basis becomes the asset's value on the date of death, not what the original owner paid. This can eliminate or reduce capital gains tax if you sell the inherited asset shortly after inheriting it. Net Investment Income Tax (NIIT) of 3.8% may also apply to capital gains if your modified adjusted gross income exceeds certain thresholds ($200,000 for single filers, $250,000 for married filing jointly).
Frequently Asked Questions
Do I owe capital gains tax if I reinvest the money?
Yes. Capital gains tax is based on the profit you made, not on what you do with the money afterward. Whether you spend the proceeds, reinvest them, or leave them in a bank account, you owe tax on the gain in the year you sold the asset.
What if I sold at a loss?
Capital losses offset capital gains dollar-for-dollar. If you have no gains to offset, you can deduct up to $3,000 of net losses against ordinary income. Any loss beyond $3,000 carries forward to future tax years and can be used to offset future gains or income.
How do I know if my gain is long-term or short-term?
Count the days from the purchase date to the sale date. If it is more than one year, it is long-term. The IRS counts the purchase date as day zero, so if you bought on January 15, 2023, and sold on January 16, 2024, it qualifies as long-term.
Do I report capital gains differently if I use a brokerage account versus a retirement account?
Yes. Gains inside retirement accounts (401(k), IRA, Roth IRA) are not taxed when you sell — you only pay tax when you withdraw money from the account. Gains in regular brokerage accounts must be reported on Schedule D in the year you sell.
Can I reduce my capital gains tax by timing when I sell?
Yes, by managing which year you realize the gain and by offsetting gains with losses. If you have a large gain and a large loss, selling both in the same year nets them against each other. Some people also spread sales across two tax years to stay in a lower bracket, though this requires planning with a tax professional.