What you pay depends on how long you held the asset and your income level

Capital gains tax is the tax on profit when you sell an asset for more than you paid for it. The rate you pay — ranging from 0% to 20% on most investments — 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, which means they use the same tax brackets as wages or salary. Long-term capital gains have their own lower tax brackets. The difference matters: you could owe 37% on a short-term gain but only 20% on a long-term gain from the same dollar amount.

Key Takeaways

  • Long-term capital gains (assets held over one year) are taxed at 0%, 15%, or 20% depending on your income; short-term gains use your ordinary income tax rate, which can be as high as 37%.
  • Your filing status and total taxable income determine which tax bracket applies, not the size of the gain itself.
  • State and local taxes add to federal capital gains tax in most places, and some states tax capital gains as ordinary income.
  • The IRS requires you to report the purchase date and sale price on your tax return, so keeping records of when you bought and sold is essential.

Long-term capital gains tax brackets for 2024

Long-term gains are taxed at 0%, 15%, or 20%. Which rate applies depends on your filing status and your total taxable income for the year — not just the gain itself.

For single filers in 2024, the 0% rate applies if your taxable income (including the gain) is $47,025 or less. The 15% rate applies from $47,026 to $518,900. Anything above $518,900 is taxed at 20%. For married filing jointly, the 0% threshold is $94,050, the 15% bracket runs to $583,750, and 20% applies above that. Head of household thresholds fall between single and married filing jointly.

These income thresholds change each year. The IRS publishes updated brackets in the fall for the following tax year. If your income changes or you have multiple gains in one year, you may move between brackets.

Short-term capital gains tax rates

Short-term gains — from assets you held for one year or less — are taxed as ordinary income. This means they use the same tax brackets as your wages, and the top rate is 37% for 2024.

The difference between short-term and long-term can be substantial. If you sell a stock after 11 months for a $10,000 gain and your top tax bracket is 24%, you owe $2,400. If you wait one month and sell it as a long-term gain, and your income puts you in the 15% long-term bracket, you owe $1,500 — a difference of $900 on the same gain.

How the IRS counts the holding period

The IRS counts the holding period from the day after you buy to the day you sell. If you buy a stock on January 15 and sell it on January 15 the following year, it is a short-term gain. You must hold it until January 16 of the next year for it to be long-term.

The holding period applies to each asset separately. You could sell one stock as short-term and another as long-term in the same year. The IRS does not average them or let you choose which to report first — you report each transaction with its own holding period and tax rate.

State and local capital gains taxes

Federal capital gains tax is only part of what you owe. Most states tax capital gains as ordinary income, meaning they add their state income tax rate on top of the federal rate. A few states have no income tax at all (Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, Wyoming), so residents pay only federal tax.

California, Hawaii, and Vermont tax capital gains at their top ordinary income rates, which can exceed 13%. New York taxes long-term gains at the same rate as short-term gains. A handful of states — including Washington and Oregon — have recently passed capital gains taxes that explore only to gains above a certain threshold, usually $250,000.

Your city or county may also tax capital gains. New York City, for example, adds a local income tax on top of state and federal rates. Check your state's Department of Revenue or tax authority website to find your specific rates.

How to calculate what you owe

Start with the sale price of the asset minus what you paid for it (including any fees or commissions). That is your gain. Then determine whether it is short-term or long-term based on the holding period.

For short-term gains, multiply the gain by your ordinary income tax bracket. For long-term gains, find your filing status and total taxable income (including the gain) to determine which 0%, 15%, or 20% bracket applies, then multiply. Finally, add your state and local capital gains taxes if they explore.

Example: You buy a stock for $5,000 and sell it two years later for $8,000. Your gain is $3,000. You are married filing jointly with total taxable income of $100,000 before the gain. Adding the $3,000 gain brings you to $103,000, which falls in the 15% long-term bracket. You owe $450 in federal tax on that gain (15% of $3,000), plus whatever your state and local rates are.

Losses and how they offset gains

If you sell an asset for less than you paid, you have a capital loss. You can use losses to offset gains in the same year. If you have $10,000 in long-term gains and $6,000 in long-term losses, you report a net gain of $4,000 and pay tax only on that amount.

If losses exceed gains in a year, you can deduct up to $3,000 of the excess loss against ordinary income (like wages). Any loss beyond that carries forward to future years, where you can use it to offset future gains or ordinary income.

Frequently Asked Questions

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

Yes. The IRS requires you to report all capital gains, regardless of size, on Schedule D of your tax return. Even a $50 gain must be reported. Failure to report can result in penalties and interest.

What if I inherited an asset and then sold it?

Inherited assets receive a "step-up in basis," meaning the IRS values them at their market price on the date of death, not what the original owner paid. If you inherit a stock worth $10,000 and sell it for $10,500 a month later, your gain is only $500, not the full difference from what the original owner paid.

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

Yes. If you donate an appreciated asset directly to a may have access to charity, you avoid capital gains tax on the appreciation and can deduct the full fair market value as a charitable contribution. You must itemize deductions on your tax return for this to benefit you.

Are cryptocurrency gains taxed the same way as stock gains?

Yes. The IRS treats cryptocurrency as property, not currency. Long-term gains on crypto held over one year are taxed at 0%, 15%, or 20%. Short-term gains use your ordinary income rate. You must report every transaction, including trades between cryptocurrencies.

What happens if I sell at a loss in December and buy the same stock back in January?

The IRS has a "wash sale" rule that prevents you from deducting the loss if you buy the same or substantially identical security within 30 days before or after the sale. You can buy a similar but different stock without triggering the rule, but the IRS watches for attempts to circumvent this rule.