The tax rate on capital gains depends on how long you held the asset and your income level

Capital gains tax is not a single rate. The IRS taxes gains differently based on two facts: whether you held the asset for more or less than one year, and your total taxable income for the year. Long-term gains (held over one year) are taxed at 0%, 15%, or 20%. Short-term gains (held one year or less) are taxed as ordinary income, which means your regular tax bracket applies — anywhere from 10% to 37% depending on your income.

Your income level determines which rate you pay. The IRS publishes tax brackets each year that change slightly. For 2024, for example, a single filer pays 0% on long-term gains if their income is below $47,025, then 15% from $47,025 to $518,900, then 20% above that. These numbers shift annually and differ for married filers, heads of household, and other filing statuses.

The practical effect: if you sell stock you bought six months ago, you pay your regular income tax rate on the profit. If you sell stock you bought three years ago, you pay a lower preferential rate — often 15% or 0%, even if your ordinary income tax rate is 24% or higher.

Key Takeaways

  • Long-term capital gains (assets held over one year) are taxed at 0%, 15%, or 20% depending on your total income for the year.
  • Short-term capital gains (assets held one year or less) are taxed at your ordinary income tax rate, which can be as high as 37%.
  • Your filing status and total taxable income determine which rate bracket you fall into; the IRS publishes new brackets each year.
  • State and local taxes on capital gains vary widely — some states tax them at ordinary income rates, others do not tax them at all.

How the IRS defines "long-term" versus "short-term"

The holding period is measured from the purchase date to the sale date. If you buy a stock on March 15, 2024, and sell it on March 15, 2025, you have held it for exactly one year — that sale qualifies for long-term rates. If you sell on March 14, 2025, it is short-term and taxed at ordinary rates.

The IRS counts the purchase date as day zero. You must hold the asset for more than one year to may have access to for long-term treatment. "More than one year" means at least 366 days in a leap year, 365 in a regular year. Wash sales (selling at a loss and buying the same or substantially identical security within 30 days) do not reset the holding period, but they do prevent you from deducting the loss.

For inherited assets, the holding period does not matter. You inherit stock and sell it the next day — you still pay long-term rates because the law treats inherited property as long-term by definition. This is called a stepped-up basis, and it applies to most inherited assets.

Long-term capital gains tax brackets for 2024

The 0% bracket applies to lower-income filers. For single filers in 2024, you pay 0% on long-term gains if your total taxable income (including the gains themselves) is $47,025 or less. For married filing jointly, the threshold is $94,050. For heads of household, it is $62,700. These thresholds increase slightly each year.

The 15% bracket covers the middle range. Single filers pay 15% on long-term gains if their income falls between $47,025 and $518,900. Married filing jointly pay 15% between $94,050 and $583,750. This is where most long-term gains are taxed.

The 20% bracket applies to high-income filers. Single filers pay 20% on long-term gains above $518,900 in taxable income. Married filing jointly pay 20% above $583,750. Additionally, if your modified adjusted gross income exceeds certain thresholds ($200,000 for single filers, $250,000 for married filing jointly), you owe a 3.8% Net Investment Income Tax on top of the capital gains rate. This means the effective rate can reach 23.8% for the highest earners.

Short-term capital gains are taxed like wages

Short-term gains follow your ordinary income tax brackets. If you are in the 22% tax bracket for wages, short-term capital gains are also taxed at 22%. If you are in the 37% bracket, short-term gains are taxed at 37%. There is no preferential rate for short-term gains.

This creates a significant difference. Suppose you sell a rental property you owned for eight months and realize a $50,000 gain. As a single filer earning $80,000 in wages, you are in the 22% bracket. That $50,000 short-term gain is taxed at 22%, costing you $11,000. If you had held the property for 13 months instead, the same $50,000 would be taxed at 15%, costing you $7,500 — a $3,500 difference.

Short-term gains also push you into higher brackets. If your wages are $47,000 and you realize $10,000 in short-term gains, your taxable income becomes $57,000. The gains may be taxed partly at 12% and partly at 22%, depending on where the bracket boundaries fall.

State and local taxes on capital gains vary widely

Federal tax is only part of the picture. Most states tax capital gains as ordinary income. California, for example, taxes long-term and short-term gains at the same rate as wages — up to 13.3% at the top bracket. New York taxes long-term gains at ordinary income rates, with a top rate of 10.9%. Illinois taxes capital gains at 4.95%, flat, regardless of the federal rate.

A few states do not tax capital gains at all. Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming have no state income tax. New Hampshire and Tennessee tax only dividends and interest, not capital gains. If you live in one of these states, you owe only federal tax on your gains.

Some states have recently enacted or proposed capital gains taxes that explore only to high earners. Washington State, for example, enacted a 7% capital gains tax on gains above $250,000 per year. These state-level taxes are separate from federal tax and are added on top.

How to report capital gains on your tax return

Capital gains are reported on Schedule D (Form 1040), which you attach to your main tax return. Schedule D has two sections: Part I for short-term gains and Part II for long-term gains. You list each sale separately — the date acquired, date sold, cost basis, sale price, and gain or loss.

Your broker sends you a Form 1099-B (Proceeds from Broker and Barter Exchange Transactions) by January 31 each year. This form lists every sale you made during the year. The IRS receives a copy, so your reported gains must match the 1099-B. If they do not, the IRS will send you a notice.

If your total gains and losses are small, you may be able to report them directly on Form 1040 without filing Schedule D. The IRS allows this only if you have no losses to carry forward and your gains are straightforward. Most people with multiple sales use Schedule D.

If you have losses, you can deduct up to $3,000 of net capital losses against ordinary income in a single year. Losses beyond $3,000 carry forward to future years indefinitely. This is why tracking your cost basis carefully matters — a mistake on basis can cost you thousands in tax over time.

Special situations that change your tax rate

Collectibles — art, antiques, coins, stamps — are taxed at a maximum rate of 28%, even if they are long-term gains. This is higher than the 20% top rate for other long-term assets. If you sell a painting you bought 10 years ago for a $100,000 gain, you pay 28% federal tax on that gain, not 20%.

Section 1202 small business stock can may have access to for a 50% exclusion if you held it for more than five years. This means you only pay tax on half the gain. If you sell small business stock with a $100,000 gain, you pay tax on only $50,000. This applies only to stock in C corporations with gross assets under $50 million at the time you bought it.

may have access to dividend income is taxed at the same rates as long-term capital gains — 0%, 15%, or 20% depending on income. Ordinary dividends are taxed at your regular income tax rate. Your 1099-DIV from your broker specifies which type you received.

Frequently Asked Questions

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

No. You do not owe tax on a loss. Instead, you can deduct the loss against other gains or up to $3,000 of ordinary income in a single year. Losses beyond $3,000 carry forward to future years. This is why it matters to track losses — they reduce your tax bill.

What if I inherited stock and sold it right away?

You owe long-term capital gains tax even though you held it for zero days. Inherited assets receive a stepped-up basis, meaning the IRS treats them as long-term automatically. You pay the long-term rate (0%, 15%, or 20%) based on your income, not the short-term rate.

How do I know my cost basis if I lost the original purchase documents?

Your broker can usually provide it. Contact the brokerage where you held the account and ask for a cost basis report. If the account is closed, request archived statements. For very old purchases, the IRS may accept a reasonable estimate if you document your effort to find the original cost.

Do I have to pay capital gains tax the year I sell, or can I defer it?

You owe tax in the year you sell, with limited exceptions. Opportunity Zone investments allow you to defer gains if you reinvest in a may have access to fund within 180 days. Otherwise, the gain is taxable in the year of sale, even if you do not receive the money until the next year.

What is the difference between realized and recognized gains?

A realized gain is the profit you made on paper. A recognized gain is the profit the IRS requires you to pay tax on. Most of the time they are the same, but some transactions (like like-kind exchanges under old rules, or gifts to charity) allow you to realize a gain without recognizing it for tax purposes.