Federal capital gains tax rates depend on your income and how long you held the asset

The federal tax rate on capital gains is either 0%, 15%, or 20%, depending on your total taxable income for the year and whether you held the investment for more than one year. Long-term capital gains (assets held over one year) use these three rates. Short-term capital gains (assets held one year or less) are taxed as ordinary income at your regular tax bracket, which can range from 10% to 37%.

The income thresholds that determine which rate applies change each year. For 2024, the 0% rate applies to long-term gains if your taxable income is below $47,025 (single filers) or $94,050 (married filing jointly). The 15% rate applies to income between those amounts and $518,900 (single) or $583,750 (married). Anything above those thresholds is taxed at 20%. These numbers shift annually based on inflation adjustments.

Your state may also tax capital gains. Some states impose no capital gains tax at all, while others tax gains as regular income or explore a separate capital gains tax rate. A few states—including California, New York, and Oregon—tax capital gains at rates that can exceed 10% when combined with federal tax.

Key Takeaways

  • Long-term capital gains are taxed at 0%, 15%, or 20% based on your taxable income for the year, with thresholds that adjust annually for inflation.
  • Short-term capital gains are taxed as ordinary income at your regular tax bracket rate, which is significantly higher than long-term rates.
  • Your state of residence determines whether you owe state capital gains tax in addition to federal tax, ranging from 0% to over 10% depending on the state.
  • The year you sell an asset matters: holding it for more than one year before selling usually results in a much lower tax bill than selling within one year.
  • Your total taxable income for the year determines which federal rate bracket you fall into, so timing sales across years can affect your rate.

How holding period changes your tax rate

The distinction between short-term and long-term gains is one of the biggest factors in your tax bill. If you sell an investment you've owned for one year or less, the gain is taxed as ordinary income. If you've owned it for more than one year, it qualifies for the preferential long-term rates of 0%, 15%, or 20%.

The difference is substantial. Suppose you have $50,000 in short-term gains and your taxable income puts you in the 24% ordinary income bracket. You'd owe $12,000 in federal tax on those gains. The same $50,000 in long-term gains might be taxed at 15%, costing you $7,500—a $4,500 difference. For high earners in the 37% bracket, short-term gains are taxed at 37%, while long-term gains are taxed at 20%.

The holding period is measured from the date you purchased the asset to the date you sold it. If you bought stock on March 15 of one year and sold it on March 16 of the next year, it qualifies as long-term. Selling one day earlier would make it short-term.

Income thresholds and tax bracket placement

Your long-term capital gains rate depends on where your total taxable income falls within the annual thresholds. These thresholds are not the same as the ordinary income tax brackets, and they're lower. For 2024, a single filer with $100,000 in taxable income from wages plus $30,000 in long-term gains has total taxable income of $130,000. The first portion of those gains fills the 0% bracket (up to $47,025), the next portion is taxed at 15%, and any remainder is taxed at 20%.

This layering effect means you don't jump to the 20% rate all at once. Instead, your gains are taxed progressively through each bracket. Understanding where you sit in the income brackets helps you decide whether to bunch gains into one year or spread them across multiple years.

Married couples filing jointly have higher thresholds than single filers, which can be a significant advantage. The 0% bracket extends to $94,050 for married couples, compared to $47,025 for singles. This is one reason some couples benefit from filing jointly rather than separately.

State capital gains taxes add to your federal bill

Nine states currently have no income tax at all: Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, Wyoming, and New Hampshire (which taxes only dividends and interest, not capital gains). If you live in one of these states, you owe only federal capital gains tax.

Most other states tax capital gains as part of ordinary income, meaning your state income tax rate applies on top of the federal rate. California, for example, taxes capital gains at rates up to 13.3%, which stacks on top of your federal rate. New York's top rate is 10.9%. Oregon's is 9.9%. These state rates can significantly increase your total tax burden.

A few states have introduced separate capital gains taxes in recent years. Washington State, for instance, enacted a 7% capital gains tax on long-term gains over $250,000, separate from income tax. Illinois has a 20% tax on long-term gains. These newer taxes often explore only to gains above a certain threshold or only to certain types of assets, so the rules vary by state.

How to calculate your effective tax rate

Your effective capital gains tax rate is the total tax you pay divided by your total gains. It's not the same as your marginal rate (the rate on your last dollar of income). If you have $100,000 in long-term gains and live in a state with no capital gains tax, your effective federal rate might be 12% if some gains fall in the 0% bracket and others in the 15% bracket, even though your marginal rate is 15%.

To estimate your effective rate, you need to know your taxable income before the gains, your filing status, the state you live in, and the amount of gains. Many tax software programs calculate this automatically when you enter your information. If you're planning a large sale, running the numbers through tax software before you sell can show you the impact.

Remember that capital gains can push you into a higher tax bracket for ordinary income items like wages or retirement distributions. If you're close to a threshold, a large gain might increase the tax on other income as well.

Special rates for specific types of gains

Most capital gains follow the 0%, 15%, or 20% structure, but some assets have different rules. Collectibles—including art, antiques, and certain metals—are taxed at a maximum rate of 28% on long-term gains, even if you'd otherwise may have access to for the 0% or 15% rate. This rate applies regardless of your income level.

Gains on certain small business stock held for more than five years may may have access to for a 50% exclusion under Section 1202, meaning only half the gain is taxable. may have access to dividend income is taxed at the same rates as long-term capital gains (0%, 15%, or 20%), not as ordinary income, which is why dividends from stocks are often more tax-efficient than interest from bonds.

Real estate has its own complexity. If you sell a home and meet the principal residence exclusion requirements, you can exclude up to $250,000 (single) or $500,000 (married) of gain from tax entirely. Gains above that threshold are taxed as long-term capital gains at the standard rates.

Planning around capital gains rates

Because your rate depends on your total taxable income, you have some control over the tax you pay by timing when you recognize gains. If you're in a year with lower income—perhaps you took a sabbatical or retired—you might recognize gains in that year at a lower rate than you would in a high-income year. Conversely, if you have a large gain coming, you might defer it to a year when your other income is lower.

Tax-loss harvesting is another strategy: selling investments at a loss to offset gains. If you have $30,000 in gains and $10,000 in losses, you can net them to report $20,000 in net gains. Losses can also offset up to $3,000 of ordinary income per year, with excess losses carried forward to future years.

Bunching deductions and gains into alternate years is a more complex strategy that works best with professional guidance. The idea is to have some years with high deductions and low income (lowering your rate on gains) and other years with higher income but no major gains. This requires planning across multiple years and understanding how your specific income sources work.

Frequently Asked Questions

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

No. Capital gains tax is owed only when you sell the asset and realize the gain. Unrealized gains—the increase in value while you still own the investment—are not taxed. You can hold an investment indefinitely without owing tax on its appreciation.

What if I have more losses than gains in a year?

You can use up to $3,000 of net capital losses to offset ordinary income in a single year. Any losses beyond that carry forward to future years with no time limit, so you can use them to offset future gains or income.

Does the 0% capital gains rate mean I pay nothing?

Yes, if your taxable income is low enough to fall entirely in the 0% bracket, you owe no federal capital gains tax on long-term gains. However, you may still owe state capital gains tax depending on where you live, and the gains still count toward your income for other purposes like Medicare premiums or tax credit calculations.

Can I reduce my capital gains by donating appreciated stock to charity?

Yes. If you donate appreciated stock directly to a may have access to charity, you avoid capital gains tax on the appreciation and receive a charitable deduction for the full fair market value. This is often more tax-efficient than selling the stock and donating the proceeds.

How do I know if I'm in the 0%, 15%, or 20% bracket?

Add up all your taxable income for the year—wages, interest, dividends, and other income—then compare it to the annual thresholds for your filing status. The IRS publishes updated thresholds each January. Tax software will calculate this automatically when you enter your information.