You owe capital gains tax when you sell an investment or property for more than you paid for it, and the tax is due in the tax year the sale closes

Capital gains tax applies to the profit you make, not the full sale price. If you bought stock for $5,000 and sold it for $8,000, your capital gain is $3,000 — and that $3,000 is what gets taxed. The tax is owed to the IRS when you file your tax return for the year the sale happened, typically by April 15 of the following year.

The amount you owe depends on how long you held the asset. Long-term capital gains (held one year or longer) are taxed at lower rates: 0%, 15%, or 20% depending on your income. Short-term capital gains (held less than one year) are taxed as ordinary income, which means your regular tax bracket applies — potentially 10%, 12%, 22%, 24%, 32%, 35%, or 37%.

You report capital gains on Schedule D (Form 1040) when you file your federal return. Some states also tax capital gains, though the rules and rates vary by state. If you sold property at a loss, you can use that loss to offset other gains or, in some cases, reduce your ordinary income.

Key Takeaways

  • Capital gains tax is owed on the profit from selling investments or property, not on the full sale price, and is due when you file your tax return for that year.
  • Long-term gains (held over one year) are taxed at 0%, 15%, or 20% based on your income; short-term gains are taxed at your ordinary income tax rate, which is usually higher.
  • You report the sale on Schedule D and include it with your Form 1040 when you file; some states also tax capital gains at their own rates.
  • Losses from sales can offset other gains dollar-for-dollar, and up to $3,000 of net losses can reduce your ordinary income each year.

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

The IRS divides capital gains into two categories based on how long you owned the asset before selling it. If you held it for more than one year, it is a long-term gain. If you held it for one year or less, it is a short-term gain. The holding period starts the day after you buy and ends the day you sell.

Long-term gains receive preferential tax treatment. The federal rates are 0%, 15%, or 20%, depending on your taxable income and filing status. For 2024, the 0% rate applies to single filers with taxable income up to $47,025; the 15% rate applies to income between roughly $47,025 and $518,900; and the 20% rate applies to income above that. These income thresholds change each year.

Short-term gains are taxed as ordinary income, meaning they are added to your wages, interest, and other income and taxed at your regular bracket. For someone in the 24% tax bracket, a short-term gain is taxed at 24%. This is why holding an investment for just over one year can result in a significantly lower tax bill.

What counts as a capital gain or loss

Capital gains apply to most investments and property you own for personal use or investment. This includes stocks, bonds, mutual funds, real estate, cryptocurrency, collectibles, and business assets. When you sell any of these for more than you paid (including commissions and fees), the difference is a capital gain.

Not everything triggers capital gains tax. Ordinary income — wages, interest from savings accounts, dividends from most stocks — is taxed differently and does not use the capital gains rates. may have access to dividends, however, are taxed at capital gains rates if you held the stock long enough. Inherited assets receive a "step-up in basis," meaning your cost basis resets to the value on the date of death, so you typically owe no tax on inherited property unless you sell it later for more than that stepped-up value.

Primary residence sales have a special exclusion: you can exclude up to $250,000 of gain if you are single, or $500,000 if you are married filing jointly, provided you owned and lived in the home for at least two of the last five years. This exclusion applies once every two years.

When the tax is actually due

Capital gains tax is not due immediately when you sell. Instead, you report the sale when you file your federal income tax return, which is typically due April 15 of the year following the sale. If you sold stock in March 2024, you report that gain on your 2024 tax return, filed in April 2025.

If you expect to owe a large amount in capital gains tax, you may need to make quarterly estimated tax payments to the IRS. This applies if your total tax liability (including capital gains) will exceed your withholding by $1,000 or more. Estimated payments are due on April 15, June 15, September 15, and January 15. Missing these payments can result in penalties and interest.

Some brokerages and investment platforms send you a Form 1099-B or 1099-S documenting your sales. The IRS receives a copy of this form, so your reported gains should match what the brokerage reported. If there is a discrepancy, the IRS will contact you.

State capital gains taxes

Most states do not have a separate capital gains tax, but they do tax capital gains as part of ordinary income using their state income tax rates. A few states — California, Hawaii, Illinois, Iowa, Maine, Minnesota, New Jersey, New Mexico, New York, Oregon, Vermont, and Washington D.C. — have enacted capital gains taxes that apply only to gains above a certain threshold, usually between $250,000 and $1 million per year.

Washington State, for example, taxes long-term capital gains on stocks and certain other assets at 7% if the gain exceeds $250,000 in a single year. New York taxes long-term gains at 8.82% on gains over $2 million. These state taxes are in addition to federal tax, so your total tax bill can be substantially higher in these states.

If you live in a state with no income tax — such as Florida, Nevada, South Dakota, Tennessee, Texas, or Wyoming — you owe no state capital gains tax. If you move to a different state, the state where you lived when you sold the asset is generally the one that taxes the gain.

Using losses to reduce your tax bill

If you sell an investment or property for less than you paid, you have a capital loss. Capital losses can offset capital gains dollar-for-dollar. If you had $10,000 in gains and $6,000 in losses in the same year, your net capital gain is $4,000, and you are taxed only on that $4,000.

If your losses exceed your gains in a year, you can deduct up to $3,000 of the net loss against your ordinary income. If you have more than $3,000 in net losses, you can carry the excess forward to future years and use it to offset gains or income in those years. This carryforward continues indefinitely until the loss is fully used.

Some investors use a strategy called "tax-loss harvesting," where they deliberately sell losing positions late in the year to offset gains and reduce their tax bill. This is legal, but you cannot immediately repurchase the same or a substantially identical security — the IRS "wash sale" rule prevents this for 30 days before or after the sale.

Special situations: real estate, collectibles, and inherited assets

Real estate sales often involve capital gains, but the primary residence exclusion (up to $250,000 for single filers, $500,000 for married filers) eliminates tax on most home sales. Rental properties and investment real estate do not may have access to for this exclusion and are taxed at capital gains rates. Additionally, a portion of the gain on rental property may be subject to a 3.8% net investment income tax if your modified adjusted gross income exceeds $200,000 (single) or $250,000 (married filing jointly).

Collectibles — art, antiques, coins, stamps — are taxed at a maximum federal rate of 28% on long-term gains, which is higher than the standard long-term capital gains rates. This applies even if your income would normally may have access to you for the 0% or 15% rate.

Inherited assets receive a step-up in basis to their fair market value on the date of death. This means if your parent bought a house for $200,000 and it was worth $400,000 when they died, your cost basis is $400,000. If you sell it immediately for $400,000, you owe no capital gains tax. If you sell it later for $450,000, you owe tax only on the $50,000 gain.

Frequently Asked Questions

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

No, you do not owe capital gains tax on a loss. Instead, you can use the loss to offset other gains or reduce your ordinary income by up to $3,000 per year. Losses beyond $3,000 carry forward to future years.

What if I sold cryptocurrency or NFTs?

Cryptocurrency and NFTs are treated as property by the IRS. When you sell them for more than you paid, you owe capital gains tax on the profit. The holding period determines whether it is taxed as long-term or short-term. You report these on Schedule D just like stock sales.

Do I have to pay capital gains tax on inherited property?

No, not on the inherited value itself. Inherited assets receive a step-up in basis to their value on the date of death. You owe tax only if you sell the property later for more than that stepped-up value. This applies to most inherited assets, including real estate, stocks, and retirement accounts.

Can I avoid capital gains tax by donating appreciated assets to charity?

Yes. If you donate appreciated securities or property directly to a may have access to charity, you avoid the capital gains tax entirely and can deduct the full fair market value as a charitable contribution. You must itemize deductions to benefit from this strategy.

What happens if I do not report a capital gain?

The IRS receives a copy of your brokerage's Form 1099-B or the seller's Form 1099-S. If your reported gain does not match, the IRS will send you a notice. Unreported gains result in penalties, interest, and potentially criminal charges if the IRS determines the omission was intentional.