The rate depends on how long you held the asset and how much you earned that year

Capital gains tax is not a single number — it is a range that shifts based on two things: how long you owned the asset (short-term or long-term) and your total income for the year. The federal government taxes long-term gains at 0%, 15%, or 20%. Short-term gains are taxed as ordinary income, which means rates from 10% to 37% depending on your tax bracket. Your state may add its own tax on top.

The difference between short-term and long-term is the single biggest factor in what you pay. If you sold a stock you held for less than a year, you pay your regular income tax rate on the profit. If you held it for more than a year, you pay the lower long-term rate. That difference can mean thousands of dollars on a single sale.

Key Takeaways

  • Long-term capital gains (assets held over one year) are taxed at 0%, 15%, or 20% federally, depending on your income level, while short-term gains use your ordinary income tax rate.
  • The holding period clock starts the day after you buy and ends the day you sell — you must own the asset for more than 12 months to may have access to for long-term rates.
  • Your total income for the year determines which long-term rate bracket you fall into, not just the gain itself.
  • Most states tax capital gains as ordinary income, though a few states have no capital gains tax or tax it separately at a flat rate.

Long-term capital gains rates: 0%, 15%, or 20%

If you held an asset for more than one year before selling it, the federal government taxes your profit at one of three rates. Which rate you pay depends on your taxable income for the year — not just the gain itself, but your total income after deductions.

The 0% rate applies to long-term gains if your 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 income is below that line, you owe no federal tax on long-term gains, even though you still report them on your tax return.

The 15% rate covers most people. It applies to long-term gains once your income exceeds the 0% threshold but stays below a higher limit. For 2024, that upper limit is $518,900 for single filers and $583,750 for married couples filing jointly.

The 20% rate applies to long-term gains above those income thresholds. These thresholds change each year with inflation, so the numbers you use depend on the year you sold the asset.

Short-term capital gains: taxed as ordinary income

If you sold an asset you owned for one year or less, the profit is a short-term capital gain. The IRS treats it exactly like wages or salary — it is taxed at your ordinary income tax rate, which ranges from 10% to 37% depending on your tax bracket.

This is why the holding period matters so much. A $10,000 gain on a stock you held for 11 months could be taxed at 24% (short-term), costing you $2,400. The same $10,000 gain on a stock you held for 13 months might be taxed at 15% (long-term), costing you $1,500. That is a $900 difference on a single transaction.

Short-term gains also count as earned income for purposes of calculating your tax bracket, which can push you into a higher bracket and increase the tax on all your income that year. Long-term gains do not have this effect — they are taxed in their own separate brackets.

How your total income determines your rate

The long-term capital gains brackets are tied to your taxable income, which is your gross income minus deductions and exemptions. This means two people with the same capital gain can pay different rates if their other income is different.

Example: You and a colleague each sell a rental property for a $50,000 long-term gain. You have $30,000 in other income that year; your colleague has $200,000. Your total taxable income is $80,000, so your $50,000 gain falls partly in the 0% bracket and partly in the 15% bracket. Your colleague's total income is $250,000, so the entire $50,000 gain is taxed at 15%. You pay less tax even though the gain is identical.

This is why people sometimes time large sales across two years or use deductions strategically — to keep their total income below a bracket threshold and may have access to for a lower rate on the gain.

State capital gains taxes vary widely

Most states tax capital gains as ordinary income, meaning you pay your state income tax rate on top of the federal rate. A few states have no income tax at all (and therefore no capital gains tax), while others tax capital gains at a separate, flat rate.

California, for example, taxes long-term and short-term gains identically as ordinary income, with rates up to 13.3%. New York taxes them as ordinary income with rates up to 10.9%. Washington state has no income tax but recently created a separate 7% capital gains tax on long-term gains over $250,000. New Hampshire and Tennessee tax only dividend and interest income, not capital gains from asset sales.

The state you lived in when you sold the asset is what matters, not where you bought it or where the asset is located. If you moved states, the state you lived in on the sale date is the one that taxes the gain.

How to calculate what you owe

Start by finding your cost basis — the original price you paid for the asset, plus any fees or improvements. Subtract that from the sale price. That number is your capital gain (or loss).

Next, determine whether it is short-term or long-term. Count the days from the day after you bought it to the day you sold it. If that span is more than 365 days, it is long-term.

For long-term gains, find your taxable income for the year (your tax return shows this). Look up which federal bracket your income falls into. That tells you whether your gain is taxed at 0%, 15%, or 20%. If your gain pushes you into a higher bracket, part of it may be taxed at one rate and part at another.

For short-term gains, add the gain to your other income and use your ordinary income tax bracket. Then add any state capital gains tax on top. Form 8949 (Sales of Capital Assets) and Schedule D (Capital Gains and Losses) are where you report all of this on your tax return.

Losses offset gains and reduce ordinary income

If you sold an asset at a loss, you can use that loss to reduce your taxable capital gains. If you have more losses than gains in a year, you can deduct up to $3,000 of the excess loss against your ordinary income. Any losses beyond that carry forward to future years.

This is why some people sell losing positions at the end of the year — to offset gains they made earlier and reduce their tax bill. This strategy is called tax-loss harvesting.

Frequently Asked Questions

Do I pay capital gains tax on inherited assets?

No. When you inherit an asset, your cost basis is "stepped up" to its market value on the date of death. If you sell it shortly after, you owe little or no capital gains tax, even if the person who owned it before paid much less. This applies to stocks, real estate, and most other assets.

What if I sold at a loss?

Capital losses reduce capital gains dollar-for-dollar. If you have more losses than gains, you can deduct up to $3,000 against ordinary income in that year. Unused losses carry forward to future years with no time limit.

Do I owe capital gains tax if I haven't sold yet?

No. You owe capital gains tax only when you sell the asset and realize the gain. Unrealized gains — profit on assets you still own — are not taxed. This is true even if the value has doubled.

Are dividends taxed the same as capital gains?

may have access to dividends are taxed at the same rates as long-term capital gains (0%, 15%, or 20%). Non-may have access to dividends are taxed as ordinary income. Your brokerage statement tells you which type you received.

What if I sold a home?

You may exclude up to $250,000 of gain ($500,000 if married filing jointly) if you owned and lived in the home for at least two of the last five years. This exclusion applies once every two years. Gains above the exclusion are taxed as long-term capital gains.