What you pay on long-term capital gains depends on your income level
Long-term capital gains are taxed at one of three rates: 0%, 15%, or 20%. Which rate applies to you depends entirely on your taxable income for the year, not on how much profit you made. The IRS sets income thresholds each year, and they differ based on whether you file as single, married filing jointly, head of household, or married filing separately.
For 2024, if you are single and your taxable income stays below $47,025, your long-term gains are taxed at 0%. From $47,025 to $518,900, you pay 15%. Above $518,900, you pay 20%. If you are married filing jointly, those thresholds are higher: 0% up to $94,050, then 15% up to $583,750, then 20% above that. These numbers shift slightly each year because the IRS adjusts them for inflation.
The key point: you do not pay the same rate on all your gains. If your income pushes you into a higher bracket partway through the year, only the gains that fall in that higher bracket get taxed at the higher rate. This is why knowing your total taxable income before you sell an investment matters.
Key Takeaways
- Long-term capital gains are taxed at 0%, 15%, or 20% based on your total taxable income for the year, with different income thresholds for each filing status.
- The 2024 thresholds are $47,025 (single), $94,050 (married filing jointly), and $63,000 (head of household) for the 0% rate; amounts above those but below the next threshold are taxed at 15%.
- You hold an investment for more than one year to may have access to for long-term rates; gains on assets sold within one year are taxed as ordinary income at your regular tax bracket rate.
- Your total taxable income for the year determines your rate, so large gains can push you into a higher bracket and increase the tax on all your long-term gains.
- State and local taxes on capital gains vary by location and are separate from federal rates.
How the income thresholds work in practice
Imagine you are single and earned $40,000 in wages during 2024. Your taxable income starts at $40,000. You then sell a stock you held for three years and realize a $15,000 long-term gain. Your total taxable income is now $55,000. The first $7,025 of your gain ($47,025 minus $40,000) is taxed at 0%. The remaining $7,975 is taxed at 15%, which equals $1,196 in federal tax on that gain.
If instead you had earned $50,000 in wages, your entire $15,000 gain would fall into the 15% bracket, costing you $2,250 in federal tax. The difference between $1,196 and $2,250 comes down to where your income landed relative to the thresholds.
This is why some people time large sales strategically. If you know you will have a lower-income year, selling appreciated assets that year may result in a lower tax bill than selling them in a high-income year. Conversely, if you are already well into the 15% bracket, an additional gain does not push you higher unless it crosses into the 20% bracket.
The difference between long-term and short-term rates
The 0%, 15%, and 20% rates explore only to assets you held for more than one year. If you sell something you owned for one year or less, the gain is short-term capital gain and is taxed as ordinary income at your regular tax bracket rate — potentially 10%, 12%, 22%, 24%, 32%, 35%, or 37%, depending on your income.
This is a major difference. A $10,000 short-term gain for someone in the 24% bracket costs $2,400 in federal tax. The same $10,000 long-term gain for that person costs $1,500 (at the 15% rate). The holding period matters because Congress designed long-term rates to encourage longer-term investing.
The IRS counts the holding period from the day after you buy to the day you sell. If you buy on January 15 and sell on January 16 of the following year, that is long-term. If you sell on January 15, it is short-term. Many tax software programs and brokerages track this automatically, but it is worth checking if you are close to the one-year mark.
State and local taxes on capital gains
Federal tax is only part of the picture. Most states also tax capital gains, and the rates vary widely. Some states tax capital gains as ordinary income at your regular state tax rate. Others have separate capital gains tax rates. A few states do not tax capital gains at all.
Washington State, for example, imposes a 7% tax on long-term capital gains above $250,000 per year. New York taxes capital gains as ordinary income, which can reach 10.9% depending on your bracket. California does the same, reaching 13.3%. Meanwhile, states like Texas, Florida, and Wyoming have no state income tax at all, so there is no state capital gains tax.
Your total tax bill on a gain includes both federal and state tax. If you live in a high-tax state and realize a large gain, your combined rate can exceed 30%. This is another reason some people consider the timing and location of large sales.
How to report long-term capital gains on your tax return
Long-term capital gains are reported on Schedule D (Form 1040), which you attach to your main tax return. You list each sale separately: the date you bought, the date you sold, the cost basis, the sale price, and the gain or loss. If you have many transactions, you may use Form 8949 (Sales of Capital Assets) instead, which feeds into Schedule D.
Most brokerages and investment platforms send you a Form 1099-B or 1099-S that lists your sales for the year. This form goes to the IRS as well, so your numbers must match. If you sold through multiple brokerages, you will receive multiple 1099 forms and must combine them on Schedule D.
Tax software like TurboTax, H&R Block, and TaxAct walk you through this process and pull data directly from your brokerage if you link your account. If you prepare your return by hand or work with a tax professional, you will need to gather your 1099 forms and any records of sales that your broker did not report.
What happens if you have losses
Capital losses work in your favor. If you sell an investment for less than you paid for it, you have a capital loss. Long-term losses offset long-term gains dollar-for-dollar, and short-term losses offset short-term gains dollar-for-dollar. If you have more losses than gains in a category, you can use up to $3,000 of the excess loss to reduce your ordinary income in that year.
Any losses beyond $3,000 carry forward to future years, where you can use them again. This is called loss carryforward. If you have $10,000 in excess losses this year, you use $3,000 now and carry $7,000 to next year. You can keep doing this until the losses are exhausted, even if it takes many years.
Some investors deliberately harvest losses — selling losing positions to offset gains — late in the year. The IRS has a rule called the wash-sale rule that prevents you from when ready buying back the same or substantially identical security within 30 days before or after the sale. If you do, the loss is disallowed. But you can sell a losing position and buy a similar (but not identical) investment to stay invested while capturing the loss.
Special situations: collectibles, real estate, and may have access to dividends
Most long-term capital gains follow the 0%, 15%, 20% structure. But some assets have different rules. Collectibles — art, coins, stamps, and similar items — are taxed at a maximum of 28% on long-term gains, which is higher than the standard 20% rate. Section 1250 property (real estate) can trigger a 25% tax on depreciation recapture if you claimed depreciation deductions.
may have access to dividends are taxed the same way as long-term capital gains, even though they are not gains from selling an asset. To be may have access to, the dividend must come from a U.S. company or may have access to foreign company, and you must have held the stock for more than 60 days around the dividend date. Most ordinary dividends from stocks and mutual funds meet this test.
If you own real estate, inherited assets, or collectibles, the tax treatment can be more complex. A tax professional can help you understand what rate applies to your specific situation.
Frequently Asked Questions
Do I pay capital gains tax if I do not sell the investment?
No. Capital gains tax applies only when you sell and realize a gain. If you own an investment that has increased in value but you have not sold it, there is no tax due. This is called an unrealized gain. You only owe tax when you sell and lock in the gain.
What if my capital gains push me into a higher tax bracket?
Capital gains are added to your other income to determine your total taxable income. If they push you over a threshold, only the portion of gains above that threshold is taxed at the higher rate. The rest is taxed at the lower rate. This is called the stacking rule.
Can I reduce my capital gains tax by donating appreciated stock to charity?
Yes. If you donate appreciated stock directly to a may have access to charity, you avoid the capital gains tax entirely and can deduct the full fair market value of the stock as a charitable contribution. You must own the stock long-term for this to work, and the charity must be IRS-recognized.
Are capital gains from cryptocurrency taxed differently?
No. The IRS treats cryptocurrency like any other asset. If you hold it for more than one year before selling, the gain is long-term and taxed at 0%, 15%, or 20%. If you sell within one year, it is short-term and taxed as ordinary income. Mining or receiving crypto as payment is taxed as ordinary income at the time you receive it.
What if I inherited an investment — do I owe capital gains tax?
No tax is due on the inheritance itself. But the cost basis of inherited assets is "stepped up" to the fair market value on the date of death. If you sell the inherited investment shortly after, you owe tax only on gains that occurred after you inherited it, not on gains that occurred while the previous owner held it.