Capital gains tax is not a single rate — it depends on how long you held the asset and your total income for the year

The federal capital gains tax rate in the United States is either 0%, 15%, or 20%, depending on your income bracket. These are called long-term capital gains rates and apply when you sell an asset you have owned for more than one year. If you sell something you owned for one year or less, the gain is taxed as ordinary income — meaning it uses your regular income tax brackets, which range from 10% to 37%.

Your income bracket for capital gains is determined by your total taxable income for the year, not just the gain itself. The IRS sets the income thresholds each year, and they differ based on whether you file as single, married filing jointly, or head of household. For 2024, for example, the 0% rate applies to single filers with income up to $47,025, but that number changes annually.

State and local taxes add to the federal rate. Some states tax capital gains as ordinary income, some tax them at a lower rate, and a few states do not tax capital gains at all. You need to check your own state's rules to know your total tax burden.

Key Takeaways

  • Long-term capital gains (assets held over one year) are taxed at 0%, 15%, or 20% federally, based on your income bracket for that year.
  • Short-term capital gains (assets held one year or less) are taxed as ordinary income using your regular tax brackets, which go up to 37%.
  • Your capital gains rate depends on your total taxable income, not just the gain amount, and the income thresholds change every year.
  • State and local taxes vary widely — some states add nothing, others add up to 13% or more, so your total rate depends on where you live.
  • The IRS publishes updated income brackets each year, so you should check the current thresholds before calculating what you owe.

Long-term vs. short-term capital gains rates

The holding period matters because the tax code treats long-term and short-term gains differently. Long-term capital gains are gains on assets you owned for more than one year. These use the preferential rates of 0%, 15%, or 20%. Short-term capital gains are gains on assets you owned for one year or less, and they are taxed as ordinary income at your marginal tax rate, which can be as high as 37%.

The difference is substantial. If you are in the 24% ordinary income bracket and sell a stock you held for six months, you pay 24% on the gain. If you hold that same stock for 13 months and sell it, you might pay only 15% on the gain — or even 0% if your total income is low enough that year.

The one-year clock starts the day after you buy the asset. If you buy on January 15, 2024, you can sell on January 15, 2025, and the gain qualifies as long-term. Selling on January 14, 2025, makes it short-term.

How income brackets determine your capital gains rate

Your capital gains rate is not fixed — it depends on where your total taxable income falls within the year's brackets. The IRS publishes three separate sets of brackets each year: one for single filers, one for married filing jointly, one for head of household, and one for married filing separately.

For 2024, the long-term capital gains brackets for single filers are: 0% up to $47,025; 15% from $47,026 to $518,900; and 20% above $518,900. For married filing jointly, the brackets are: 0% up to $94,050; 15% from $94,051 to $583,750; and 20% above $583,750. These numbers increase each year to account for inflation.

Your capital gain is added to your other income to determine which bracket you fall into. If you are single, earn $40,000 in wages, and have a $10,000 long-term capital gain, your total taxable income is $50,000. That means $7,025 of your gain falls in the 0% bracket and $2,975 falls in the 15% bracket, so you owe tax on only the $2,975 portion.

State and local capital gains taxes

Federal tax is only part of the picture. Most states tax capital gains, though the rate and method vary. Some states tax capital gains as ordinary income, meaning they use the same rate as your wage income. Others apply a separate, lower rate. A handful of states — including Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming — do not tax capital gains at all.

California taxes capital gains as ordinary income and has rates up to 13.3%. New York adds up to 10.9% depending on income. Illinois taxes capital gains at a flat 4.95%. New Jersey applies a rate between 1.4% and 10.75%. The variation is wide, and it significantly affects your total tax bill.

Some cities and counties also impose local taxes on capital gains. New York City, for example, adds a local income tax that applies to capital gains. You need to check both your state and any local jurisdiction where you live or work.

Special capital gains rates and exceptions

The standard 0%, 15%, and 20% rates apply to most investments, but some gains receive different treatment. Collectibles — art, antiques, precious metals, and similar items — are taxed at a maximum rate of 28% on long-term gains, even if your income would otherwise put you in the 15% bracket. Section 1250 property — real estate you depreciated for business purposes — is subject to a 25% rate on the depreciation recapture portion of the gain.

Gains on certain small-business stock held for more than five years may be excluded from taxation entirely under Section 1202 of the tax code, though this applies only to stock in may have access to small businesses and has strict limits. Gains on inherited assets receive a step-up in basis, meaning the cost basis resets to the asset's value on the date of death, so heirs typically owe no tax on gains that occurred before inheritance.

How to calculate what you owe

Start by determining whether your gain is long-term or short-term based on your holding period. Calculate the gain by subtracting your cost basis (what you paid, plus commissions and fees) from the sale price. If it is short-term, add it to your ordinary income and use your regular tax brackets. If it is long-term, determine your total taxable income for the year, then see which capital gains bracket you fall into.

Use the IRS's current-year tax tables or a tax calculator to find the exact brackets for your filing status. Remember that capital gains are stacked on top of your other income, so a large gain can push you into a higher bracket. Once you know your federal rate, add your state and local rates to find your total tax burden.

If you owe tax on capital gains, you may need to make estimated tax payments to the IRS during the year, especially if the gain is large or you do not have enough tax withheld from wages. The IRS can charge penalties and interest if you underpay.

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 capital losses to offset capital gains dollar-for-dollar. If your losses exceed your gains, you can deduct up to $3,000 of the net loss against ordinary income in a single year, and carry forward any remaining loss to future years.

What if I sell a house I lived in?

The first $250,000 of gain on a primary residence is excluded from tax if you are single and meet certain conditions (owned and lived in the home for at least two of the last five years). For married couples filing jointly, the exclusion is $500,000. This is a one-time exclusion per residence, and you can use it only once every two years.

Do I have to report capital gains if they are small?

Yes. The IRS requires you to report all capital gains, regardless of size. Even a $50 gain must be reported on your tax return. Failure to report can result in penalties and interest, and the IRS matches brokerage reports to tax returns, so unreported gains are often caught.

Can I reduce my capital gains tax by timing when I sell?

Yes, in some cases. If you have both gains and losses, you can sell losing positions to offset gains in the same year. You can also spread large gains across multiple years by selling in tranches. However, the "wash sale" rule prevents you from buying back the same or substantially identical security within 30 days before or after a loss sale, or the loss is disallowed.

What is the difference between capital gains and dividends?

Dividends are payments made by a company to shareholders, while capital gains are profits from selling an asset. may have access to dividends — those from U.S. corporations or certain foreign corporations held for a minimum period — are taxed at the same 0%, 15%, or 20% long-term capital gains rates. Non-may have access to dividends are taxed as ordinary income.