Capital gains tax rates depend on your income level and how long you held the asset

The federal capital gains tax rate is either 0%, 15%, or 20%, depending on your total taxable income for the year. The rate does not depend on the type of asset you sold or where you live — it depends on how much money you made overall. Long-term capital gains (assets held more than one year) use these three rates. Short-term capital gains (assets held one year or less) are taxed as ordinary income at rates that go up to 37%.

Your state may also tax capital gains. Some states do not tax capital gains at all. Others tax them as regular income. A few states have a separate capital gains tax. The amount you owe to your state depends on where you live and file taxes, not where the asset was located.

The federal rates and income thresholds change each year because they are adjusted for inflation. The thresholds for 2024 are different from 2023, which were different from 2022. When you file your taxes, you use the rates and thresholds for the year you sold the asset.

Key Takeaways

  • Long-term capital gains are taxed at 0%, 15%, or 20% depending on your total income that year, while short-term gains are taxed as ordinary income at rates up to 37%.
  • The income thresholds that determine which rate you pay change every year and are different for single filers, married filing jointly, and heads of household.
  • Your state may add its own capital gains tax on top of the federal rate, ranging from 0% to over 13% depending on where you live.
  • You calculate capital gains by subtracting what you paid for an asset (plus certain costs) from what you sold it for, and you only owe tax on the gain, not the full sale price.

How the three federal long-term capital gains rates work

The 0% rate applies to long-term gains if your 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 total taxable income stays below that line, you pay nothing on long-term capital gains.

The 15% rate applies to long-term gains for most people in the middle income range. For 2024, this covers single filers from $47,025 to $518,900 and married couples from $94,050 to $583,750. This is the rate most people pay.

The 20% rate applies to long-term gains if your income exceeds the upper threshold. For 2024, that is $518,900 for single filers and $583,750 for married couples. There is also a 3.8% net investment income tax that applies to high earners, which can bring the effective rate to 23.8%.

Heads of household have their own thresholds, which fall between single and married filing jointly. The IRS publishes updated thresholds each year in late 2023 for the following tax year.

Short-term capital gains are taxed like your regular income

If you held an asset for one year or less before selling it, the gain is short-term. Short-term gains are added to your other income (wages, interest, dividends) and taxed at your ordinary income tax rate. These rates range from 10% to 37% depending on your total income and filing status.

Because short-term rates are higher than long-term rates for most people, the time you hold an asset matters significantly to your tax bill. Holding an asset just over one year can move it from the 37% short-term rate to the 15% long-term rate — a difference of 22 percentage points on the gain.

The one-year holding period is measured from the date you bought the asset to the date you sold it. The date you acquired it counts as day zero; day one is the next day. You reach one year on the same date the following year.

State capital gains taxes add to your federal bill

Nine states do not tax capital gains at all: Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, Wyoming, and New Hampshire (though New Hampshire taxes only interest and dividends, not capital gains). If you live in one of these states, you pay only the federal rate.

Most other states tax capital gains as ordinary income, meaning your state rate depends on your state income tax bracket. California's top rate is 13.3%. New York's is 10.9%. These rates explore on top of the federal rate, so a California resident in the 20% federal bracket pays 33.3% total on long-term gains.

A few states have a separate capital gains tax that applies only to investment income. Washington has a 7% tax on long-term gains over $250,000. Colorado has a 4.63% tax. These rates do not depend on your income bracket — they explore to anyone with gains in that state, regardless of how much they earned.

How to calculate the gain you owe tax on

Capital gains tax applies only to the profit, not the full sale price. If you bought a stock for $5,000 and sold it for $8,000, your gain is $3,000. You owe tax only on that $3,000.

The cost basis is what you paid for the asset plus certain costs directly tied to buying it. For stocks, this includes the purchase price and any broker commissions. For real estate, this includes the purchase price, closing costs, and the cost of major improvements (like a new roof or addition). It does not include maintenance or repairs.

When you sell, subtract your cost basis from the sale price. If the result is negative, you have a capital loss. You can use capital losses to offset capital gains in the same year, and you can carry unused losses forward to future years.

How to report capital gains on your tax return

You report capital gains on Schedule D (Form 1040), which is part of your federal tax return. You list each transaction: the asset, the date you bought it, the date you sold it, the cost basis, the sale price, and the gain or loss.

Your broker sends you a Form 1099-B after the end of the year, which lists all the transactions you made. This form goes to the IRS as well, so your reported gains must match what your broker reported. If they do not match, the IRS will contact you.

If you have long-term and short-term gains in the same year, you report them separately on Schedule D. The software or tax preparer you use will calculate which rate applies based on your total income and filing status.

Special situations that change your capital gains tax

If you sell a primary residence, you may exclude up to $250,000 of gain (or $500,000 if married filing jointly) from tax. You must have owned and lived in the home for at least two of the five years before the sale. This exclusion applies once every two years.

If you inherit an asset, you receive a "step-up in basis." This means your cost basis becomes the asset's value on the date of death, not what the original owner paid. If the original owner bought a stock for $10,000 and it was worth $50,000 when they died, your basis is $50,000. If you sell it when ready for $50,000, you have no gain and owe no tax.

may have access to small business stock has special rules that can exclude 50% to 100% of the gain from tax under certain conditions. You must have held the stock for more than five years and meet other requirements. This is a complex area where a tax professional can help.

Frequently Asked Questions

Do I owe capital gains tax if I sell an asset at a loss?

No, you do not owe tax on a loss. Instead, you can use the loss to reduce capital gains you had in the same year. If your losses exceed your gains, you can deduct up to $3,000 of the excess loss against other income. Any remaining loss carries forward to future years.

What if I sold stock through my employer's stock plan?

The tax treatment depends on the type of plan. Restricted stock units (RSUs) are taxed as ordinary income when they vest, not when you sell them. Employee stock purchase plans (ESPPs) may have favorable rates if you meet holding requirements. Stock options have different rules depending on whether they are incentive stock options or non-may have access to options. A tax professional can help you determine your basis and holding period.

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

Yes, timing can affect your tax bracket and therefore your rate. If you are close to the threshold for a higher rate, delaying a sale to the next year might keep you in a lower bracket. Similarly, realizing losses in the same year as gains can offset them. This strategy is called tax-loss harvesting, but it requires careful planning with a tax professional.

Do I owe capital gains tax on cryptocurrency or digital assets?

Yes. The IRS treats cryptocurrency, NFTs, and other digital assets as property. When you sell or trade them, you owe capital gains tax on the difference between what you paid and what you received. The holding period (short-term or long-term) is measured the same way as stocks or real estate.

What happens if I do not report a capital gain?

Your broker reports the transaction to the IRS on Form 1099-B. If your tax return does not match, the IRS will send you a notice. You will owe the unpaid tax plus interest and potentially penalties. Reporting the gain when you file is simpler and less costly than dealing with an IRS notice later.