The rate depends on your income and how long you held the asset

Capital gains tax is not a single fixed percentage. The federal rate you pay on profit from selling stocks, real estate, or other investments ranges from 0% to 20%, depending on two things: your total income for the year and whether you held the asset for more than one year.

If you held an asset for one year or less before selling it, the profit counts as a short-term capital gain and is taxed at your ordinary income tax rate — the same rate that applies to your salary or wages. That rate can be 10%, 12%, 22%, 24%, 32%, 35%, or 37%, depending on your income bracket.

If you held an asset for more than one year, the profit counts as a long-term capital gain and gets preferential rates: 0%, 15%, or 20%. Most people in the middle income range pay 15%. The 0% rate applies only to lower-income filers. The 20% rate applies to high-income filers.

On top of federal tax, you may owe state capital gains tax, which varies by state. Some states do not tax capital gains at all. Others tax them as ordinary income. A few states have their own capital gains tax rate.

Key Takeaways

  • Short-term capital gains (assets held one year or less) are taxed at your ordinary income tax rate, which ranges from 10% to 37% depending on your income.
  • Long-term capital gains (assets held more than one year) are taxed at 0%, 15%, or 20% depending on your income, and most middle-income earners pay 15%.
  • Your state may add additional capital gains tax on top of the federal rate, or may not tax capital gains at all.
  • The difference between short-term and long-term rates can save you thousands of dollars on the same sale, so holding an asset past the one-year mark often matters.

How the federal long-term rate is determined

The IRS uses your taxable income — not your total income — to place you in one of three long-term capital gains brackets. Taxable income is what remains after you subtract the standard deduction or itemized deductions from your gross income.

For 2024, the brackets are roughly: 0% rate for single filers with taxable income up to $47,025; 15% rate from $47,025 to $518,900; and 20% rate above $518,900. For married couples filing jointly, the ranges are higher. These numbers change each year with inflation.

You do not choose which rate applies to you. The IRS calculates it based on your tax return. If your taxable income falls in the 15% bracket, all your long-term gains are taxed at 15%, up to the point where your income would move you into the 20% bracket.

How the federal short-term rate is determined

Short-term capital gains use the same income brackets as your regular wages or salary. If you are in the 24% tax bracket for ordinary income, short-term gains are also taxed at 24%. This is why the holding period matters so much: the difference between 24% and 15% on a $10,000 gain is $900.

Short-term gains are added to your other income and taxed as part of your total taxable income for the year. If you have a large short-term gain in a year when you also have a high salary, you may be pushed into a higher bracket, raising the tax on both.

State capital gains tax rates

Nine states — Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, Wyoming, and New Hampshire — do not tax capital gains at all. New Hampshire taxes only investment income from dividends and interest, not gains from selling assets.

Most other states tax capital gains as ordinary income, meaning they explore their regular income tax rate to the gain. California, for example, taxes long-term capital gains at the same rate as wages. A few states — including Maryland, New Jersey, and Vermont — have separate capital gains tax rates that are lower than their ordinary income rates but higher than the federal long-term rate.

If you live in a state with capital gains tax and sell an asset for a significant profit, you will owe both federal and state tax. A $50,000 long-term gain might be taxed at 15% federally ($7,500) and then again at your state rate, which could add another $5,000 to $10,000 depending on where you live.

How losses reduce what you owe

If you sell an asset at a loss, you can use that loss to offset capital gains from other sales in the same year. If you sold one stock for a $5,000 gain and another for a $3,000 loss, you would owe tax on only $2,000 of gain.

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

This is why some investors track their sales carefully and may sell losing positions before year-end — a practice called tax-loss harvesting. It does not eliminate the tax, but it can reduce it.

Special situations that change the rate

Certain assets are taxed differently. Collectibles — art, coins, stamps — are taxed at a maximum long-term rate of 28%, even if you are in the 15% bracket. Real estate held for investment may be subject to depreciation recapture, which is taxed at 25%.

If you inherit an asset, you receive a step-up in basis, which means the IRS treats the asset's value as of the date of death, not the original purchase price. If your parent bought stock for $10,000 and it was worth $50,000 when they died, and you sell it when ready for $50,000, you owe no capital gains tax. This applies to most inherited assets but not to certain retirement accounts.

If you sell a primary residence, you may exclude up to $250,000 of gain (or $500,000 if married filing jointly) from tax, provided you owned and lived in the home for at least two of the last five years.

How to report capital gains on your tax return

You report capital gains on Schedule D (Form 1040), which asks you to list each sale separately: the date you bought it, the date you sold it, the sale price, and your cost basis. The form calculates whether each gain is short-term or long-term based on the holding period.

If you have only a few sales, you can fill out Schedule D by hand. If you have many sales, a tax software program or a tax preparer can import the data from your brokerage statements and calculate the gains automatically.

Your brokerage will send you a Form 1099-B (Proceeds from Broker and Barter Exchange Transactions) listing all your sales for the year. Use this form to check your own records and fill out Schedule D. The IRS receives a copy, so the numbers must match.

Frequently Asked Questions

Do I owe capital gains tax if I do not sell the asset?

No. Capital gains tax applies only when you sell or otherwise dispose of the asset. If you own stock that has doubled in value but you do not sell it, you owe no tax on the gain. The gain becomes taxable only when you sell.

What if I sell an asset at a loss?

You do not owe tax on a loss. Instead, you can use the loss to reduce capital gains from other sales in the same year. If losses exceed gains, you can deduct up to $3,000 against ordinary income, and carry the rest forward to future years.

How do I know if I held an asset for more than one year?

Count from the day after you bought it to the day you sold it. If you bought stock on March 15, 2023, and sold it on March 16, 2024, it qualifies as long-term. If you sold it on March 15, 2024, it is short-term. Your brokerage statement will show the holding period.

Can I reduce my capital gains tax by donating the asset to charity instead of selling it?

Yes. If you donate appreciated stock or real estate directly to a may have access to charity, you avoid capital gains tax on the gain and also receive a charitable deduction for the full fair market value. You must own the asset long-term for this to work. Consult a tax preparer before donating large assets.

Is there a capital gains tax on cryptocurrency?

Yes. The IRS treats cryptocurrency like any other asset. If you buy Bitcoin for $10,000 and sell it for $30,000, the $20,000 gain is taxed as a short-term or long-term capital gain depending on how long you held it. You must report all cryptocurrency sales on your tax return.