Long-term capital gains rates are 0%, 15%, or 20% depending on your income
The tax rate you pay on investment profits depends on two things: how long you held the asset and how much total income you earned that year. Long-term capital gains — profits from assets you owned for more than one year — are taxed at preferential rates: 0%, 15%, or 20%. Short-term capital gains — profits from assets you sold within one year — are taxed as ordinary income at your regular tax bracket rate, which ranges from 10% to 37%.
The income thresholds that determine which rate applies change each year. For 2024, the 0% rate applies to single filers with taxable income up to $47,025, married filing jointly up to $94,050, and head of household up to $63,000. The 15% rate covers the income range above those amounts up to $518,900 (single), $583,750 (married filing jointly), and $551,350 (head of household). Income above those thresholds is taxed at 20%.
These thresholds are adjusted annually for inflation, so the numbers shift each tax year. Your state may also tax capital gains on top of the federal rate — some states have no capital gains tax, while others tax it as regular income or at a separate rate.
Key Takeaways
- Long-term capital gains (held over one year) are taxed at 0%, 15%, or 20% based on your total income for the year, not on the profit amount alone.
- Short-term capital gains (held one year or less) are taxed at your ordinary income tax rate, which can be as high as 37%.
- The income thresholds that determine your rate change every year and are different for single filers, married couples, and heads of household.
- State capital gains taxes vary widely — some states do not tax capital gains at all, while others tax them at rates up to 13%.
How holding period affects your tax rate
The length of time you own an investment before selling it creates a sharp difference in tax treatment. If you sell an asset you have owned for one year or less, the profit is short-term capital gain and is taxed at your marginal tax rate — the same rate as your wages or salary. For most people, this is higher than the long-term rate.
If you sell an asset you have owned for more than one year, the profit is long-term capital gain and qualifies for the preferential 0%, 15%, or 20% rates. The holding period is measured from the date you purchased the asset to the date you sold it. If you bought stock on June 15, 2023, and sold it on June 16, 2024, it qualifies as long-term even though you sold it the day after the one-year mark.
This distinction matters most for active traders or people who buy and sell frequently. A person who buys a stock and sells it three months later pays tax at their ordinary income rate. The same person who buys and holds for 13 months pays tax at the long-term rate, which is typically much lower.
Income thresholds for the 0%, 15%, and 20% rates
Your long-term capital gains rate is determined by where your total taxable income falls within three brackets. These brackets are wider than ordinary income brackets and are indexed to inflation each year, so the dollar amounts change annually.
| Filing Status | 0% Rate | 15% Rate | 20% Rate |
|---|---|---|---|
| Single | Up to $47,025 | $47,025 to $518,900 | Over $518,900 |
| Married Filing Jointly | Up to $94,050 | $94,050 to $583,750 | Over $583,750 |
| Head of Household | Up to $63,000 | $63,000 to $551,350 | Over $551,350 |
These thresholds include all your income — wages, self-employment income, dividends, and capital gains combined. If you are single and earned $40,000 in wages, then sold an investment for a $10,000 profit, your total taxable income is $50,000. The first $7,025 of your capital gain falls in the 0% bracket, and the remaining $2,975 falls in the 15% bracket.
The brackets do not shift year to year by much — usually a few hundred dollars — but they do shift. The IRS publishes the current year's brackets in January or February. If you are planning to sell a large investment, checking the current brackets helps you understand what rate will explore.
Short-term capital gains and ordinary income tax rates
Short-term capital gains are taxed at your marginal tax rate, which is the same rate applied to your wages, salary, and other ordinary income. For 2024, these rates are 10%, 12%, 22%, 24%, 32%, 35%, and 37%, depending on your income level and filing status.
Because short-term rates are typically much higher than long-term rates, the difference can be substantial. A person in the 24% tax bracket who sells a stock after holding it for six months pays 24% tax on the profit. If that same person had held the stock for 13 months, they would likely pay 15% tax on the same profit — a 9 percentage point difference.
Short-term gains are also not may be able to access for the 0% rate, even if your income is very low. This means even people with minimal income pay at least 10% on short-term gains.
Net investment income tax and high earners
Individuals with modified adjusted gross income above certain thresholds pay an additional 3.8% tax on investment income, including capital gains. This is called the Net Investment Income Tax and applies to single filers with income over $200,000 and married couples filing jointly with income over $250,000.
This tax is applied on top of the regular capital gains rate. A high-income earner in the 20% long-term capital gains bracket who is also subject to the Net Investment Income Tax pays 23.8% total on long-term gains. The threshold amounts are not adjusted for inflation, so more people become subject to this tax each year as incomes rise.
The Net Investment Income Tax applies to long-term gains, short-term gains, dividends, and other investment income. It does not explore to wages or self-employment income.
State capital gains taxes vary widely
Federal capital gains tax is only part of what you owe. Most states also tax capital gains, though the method and rate differ significantly. Nine states have no capital gains tax at all: Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, Wyoming, and New Hampshire (which taxes only dividend and interest income, not capital gains).
States that do tax capital gains use different approaches. Some tax capital gains as ordinary income at their regular state income tax rates, which range from under 1% to over 13%. Others have a separate capital gains tax rate. California, for example, taxes long-term capital gains as ordinary income at rates up to 13.3%. Washington state has a 7% capital gains tax on long-term gains above $250,000 per year.
Your total tax burden on an investment profit includes both federal and state tax. A person in California selling a long-term investment with a $50,000 profit might pay 15% federal tax plus 13.3% state tax, for a combined rate of 28.3%.
How to calculate your capital gains tax
To find your federal capital gains tax, first determine your total taxable income for the year, including wages, self-employment income, and all capital gains. Then identify which portion of your capital gains falls into each tax bracket. If you have both long-term and short-term gains, long-term gains are taxed first at the preferential rates, and short-term gains are taxed at ordinary rates above that.
Your tax software or tax preparer will handle this calculation, but understanding the process helps you plan. If you are considering selling an investment, you can estimate your tax by adding the gain to your expected income for the year and checking which bracket it falls into.
For state tax, look up your state's capital gains tax rate or rules. Some states follow the federal long-term/short-term distinction, while others do not. A few states tax only gains above a certain threshold, so smaller gains may not be taxed at the state level even if they are taxed federally.
Frequently Asked Questions
Do I pay capital gains tax if I sell at a loss?
No. If you sell an investment for less than you paid for it, you have a capital loss, not a gain, and owe no tax on that transaction. You can use capital losses to offset capital gains in the same year. If your losses exceed your gains, you can deduct up to $3,000 of the net loss against ordinary income, and carry unused losses forward to future years.
What is the difference between long-term and short-term capital gains tax?
Long-term gains (held over one year) are taxed at 0%, 15%, or 20% based on your income. Short-term gains (held one year or less) are taxed at your ordinary income tax rate, which ranges from 10% to 37%. Long-term rates are almost always lower, which is why holding period matters.
Do I have to pay capital gains tax on inherited investments?
No, not on the inherited amount itself. Inherited investments receive a "step-up in basis," meaning the tax basis is reset to the market value on the date of death. If you inherit stock worth $100,000 and it was worth $60,000 when the person died, your basis is $100,000, and you owe no tax unless you sell it for more than that amount.
Are dividends taxed the same as capital gains?
may have access to dividends are taxed at the same long-term capital gains rates (0%, 15%, or 20%), but non-may have access to dividends are taxed as ordinary income. Most dividends from U.S. stocks held for more than 60 days are may have access to. Dividends from bonds and money market funds are usually non-may have access to and taxed at your ordinary rate.
Can I reduce my capital gains tax by timing when I sell?
Yes, by controlling which year the sale occurs in. If you are near a bracket threshold, selling in a year when your income is lower may result in a lower tax rate. You can also harvest losses in one year to offset gains in another, though the IRS has rules against "wash sales" that prevent you from when ready repurchasing the same investment.