Long-term capital gains tax rates depend on your income level, not on how much profit you made

The federal tax rate on long-term capital gains — profit from selling an asset you held for more than one year — is 0%, 15%, or 20%. Which rate applies to you depends entirely on your taxable income for that year, not on the size of your gain. The IRS sets income thresholds each year, and they differ based on whether you file as single, married filing jointly, head of household, or another status.

Your state may also tax capital gains. Some states have no capital gains tax at all. Others tax capital gains as ordinary income using their regular tax brackets. A few states have a separate capital gains tax with its own rate. The amount you owe in state tax, if any, is separate from what you owe the federal government.

The key to understanding what you will pay is knowing three things: your total taxable income for the year, your filing status, and whether your state taxes capital gains. This article walks through how the federal rates work and what to expect from state taxes.

Key Takeaways

  • Federal long-term capital gains rates are 0%, 15%, or 20%, determined by your taxable income and filing status, not by the size of your gain.
  • The 0% rate applies to lower-income filers; the 15% rate covers most middle-income filers; the 20% rate applies to high-income filers.
  • Income thresholds for each rate change every year and vary by filing status — a married couple filing jointly has higher thresholds than a single filer.
  • State capital gains tax rates and rules vary widely: some states charge no capital gains tax, others tax it as ordinary income, and a few have a separate capital gains tax.
  • Your total tax bill includes both federal and state tax, and you calculate them separately using different rules.

The three federal long-term capital gains tax brackets

The IRS divides long-term capital gains into three brackets. Your gains are taxed at the rate that matches your taxable income level. The brackets shift upward each year to account for inflation, so the exact dollar amounts change annually.

The 0% bracket applies to filers whose taxable income falls below a certain threshold. For 2024, that threshold is $47,025 for single filers and $94,050 for married couples filing jointly. If your taxable income is below these amounts, your long-term capital gains are taxed at 0% — meaning you owe no federal tax on them. This bracket exists partly because ordinary income is already taxed at 10% or 12% at these income levels, so capital gains get preferential treatment.

The 15% bracket is where most people fall. It applies to taxable income above the 0% threshold but below a higher limit. For 2024, that upper limit is $518,900 for single filers and $1,037,800 for married couples filing jointly. Long-term gains within this bracket are taxed at 15%.

The 20% bracket applies to taxable income above the 15% bracket's upper limit. This is the highest federal rate on long-term capital gains and applies to high-income filers. Long-term gains that fall into this bracket are taxed at 20%.

How your taxable income determines which bracket you fall into

Your taxable income is not the same as your total income. It is what remains after you subtract deductions and adjustments. The IRS starts with your gross income, subtracts certain deductions (like contributions to a traditional IRA or student loan interest), and then applies either the standard deduction or itemized deductions. The result is your taxable income.

Your long-term capital gains are added to this taxable income to determine which bracket applies. This matters because gains can push you into a higher bracket. For example, if you are single with $40,000 in taxable income and you sell an investment for a $20,000 gain, your total taxable income becomes $60,000. The first $7,025 of your gain ($47,025 threshold minus $40,000) is taxed at 0%, and the remaining $12,975 is taxed at 15%.

This stacking effect is why the order of your income matters. Ordinary income (wages, interest, dividends taxed as ordinary income) is taxed first. Long-term capital gains are taxed last, on top of everything else. If you have both short-term and long-term gains, short-term gains are taxed as ordinary income and stack first, pushing long-term gains higher up the brackets.

State capital gains taxes vary widely in how they work

Some states do not tax capital gains at all. These include Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming. If you live in one of these states, you owe no state tax on your capital gains, regardless of how much you made.

Most states that do tax capital gains treat them as ordinary income. They add your capital gains to your other income and tax the total using the state's regular income tax brackets. The state tax rate depends on your total income and the state's tax structure. For example, California taxes long-term capital gains as ordinary income and applies its regular state income tax rates, which range from about 1% to 13% depending on income level.

A few states have a separate capital gains tax with its own rate. Washington State, for example, has a 7% capital gains tax on long-term gains from the sale of certain assets, applied separately from ordinary income tax. New York has proposed a similar structure. These separate taxes typically explore only to gains above a certain threshold (often $250,000) and may have exceptions for certain types of assets.

To find out what your state charges, search for your state's name plus "capital gains tax" or check your state's department of revenue website. The rate and rules are specific to where you live and file taxes.

How to calculate what you owe on a capital gain

Start by determining your taxable income before the gain. Add up all your income for the year — wages, interest, dividends, business income — and subtract your deductions. This is your taxable income before capital gains.

Next, add your long-term capital gains to this number. This tells you your total taxable income. Look up the federal bracket thresholds for your filing status and the current year. Determine which bracket your total income falls into and what portion of your gain is taxed at each rate.

Multiply the portion of your gain in each bracket by that bracket's rate (0%, 15%, or 20%). Add these amounts together to get your federal tax on the gain. Then, if your state taxes capital gains, calculate your state tax using your state's rules and rates. Your total tax bill is the federal tax plus the state tax.

For example, suppose you are single, your taxable income before gains is $35,000, and you have a $30,000 long-term capital gain. Your total taxable income is $65,000. For 2024, the 0% bracket goes up to $47,025 and the 15% bracket goes up to $518,900. The first $12,025 of your gain ($47,025 minus $35,000) is taxed at 0%. The remaining $17,975 is taxed at 15%, which equals $2,696.25. Your federal tax on the gain is $2,696.25. If you live in a state with no capital gains tax, that is your total. If you live in a state that taxes capital gains at, say, 5%, you would owe an additional $1,500 in state tax.

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

Short-term capital gains are profits from selling an asset you held for one year or less. These are taxed as ordinary income at your regular income tax rate, which can be 10%, 12%, 22%, 24%, 32%, 35%, or 37% depending on your income and filing status. Short-term gains are always taxed higher than long-term gains.

Long-term capital gains receive preferential tax treatment because you held the asset longer. The maximum rate is 20%, compared to a maximum ordinary income rate of 37%. This difference can be substantial. If you have a $50,000 gain and you are in the 37% tax bracket, a short-term gain would cost you $18,500 in federal tax, while a long-term gain would cost you $10,000.

The holding period is measured from the date you bought the asset to the date you sold it. If you sell on the same day one year later, it counts as long-term. If you sell one day before the one-year mark, it is short-term. This is why timing a sale can matter for your tax bill.

Special situations that affect your capital gains tax rate

If you are subject to the Net Investment Income Tax (NIIT), you may owe an additional 3.8% federal tax on your capital gains. This tax applies to single filers with modified adjusted gross income over $200,000 and married couples filing jointly over $250,000. The 3.8% is calculated on the lesser of your net investment income or the amount by which your modified adjusted gross income exceeds the threshold. This tax is separate from your regular capital gains tax and is reported on Form 8960.

If you have both long-term and short-term gains in the same year, the IRS treats them separately. Short-term gains are taxed as ordinary income first, which can push your taxable income higher and cause your long-term gains to be taxed at a higher bracket. This is another reason to track holding periods carefully.

Certain types of assets receive different treatment. For example, collectibles (art, coins, stamps) are taxed at a maximum long-term rate of 28%, not 20%. may have access to small business stock held for more than five years may be partially excluded from taxation. Real estate depreciation recapture is taxed at 25%. These special rules explore only to specific asset types and situations, so check whether your gain qualifies for any of them.

Frequently Asked Questions

Do I have to pay capital gains tax if I reinvest the money?

Yes. The 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 does not change your tax obligation. You owe tax on the gain in the year you sell the asset.

What if my capital loss is bigger than my capital gain?

You can use capital losses to offset capital gains. If your losses exceed your gains, you can deduct up to $3,000 of the net loss against ordinary income in that year. Any loss beyond $3,000 carries forward to future years. This is why tracking losses matters — they reduce your tax bill.

Are capital gains from selling my home taxed the same way?

No. If you sell your primary residence and meet certain requirements (owned and lived in it for at least two of the last five years), you can exclude up to $250,000 of the gain from taxation if you are single, or $500,000 if you are married filing jointly. This exclusion applies once every two years. Gains above these amounts are taxed as long-term capital gains using the regular brackets.

When do I report capital gains on my tax return?

You report capital gains on Schedule D (Form 1040), which you attach to your main tax return. Your brokerage or investment company will send you Form 1099-B showing your sales and proceeds. Use this form to fill out Schedule D. The IRS matches your reported gains to the 1099-B they receive, so accuracy matters.

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

Yes, in some cases. If you are close to a bracket threshold, selling in a year when your income is lower can result in a lower tax rate on your gains. You can also harvest losses in one year to offset gains in another. However, the wash-sale rule prevents you from selling a security at a loss and buying the same or substantially identical security within 30 days before or after the sale. Consult a tax professional if you are considering timing strategies.