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

The federal capital gains tax rate is not one number — it is three, and which one applies to you depends on your total income for the year and whether you owned the asset for more than one year. Long-term capital gains (assets held over one year) are taxed at 0%, 15%, or 20%. Short-term capital gains (assets held one year or less) are taxed as ordinary income, which means they use the same brackets as wages: 10%, 12%, 22%, 24%, 32%, 35%, or 37%.

The three long-term rates are tied to the ordinary income tax brackets, but the thresholds are different. For 2024, the 0% rate applies to long-term gains if your total taxable income falls 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 that is taxed at 20%. These numbers change each year because they are adjusted for inflation.

Many states also tax capital gains, and the state rate stacks on top of the federal rate. Some states tax capital gains as ordinary income; others have a separate capital gains tax. A few states do not tax capital gains at all. Your total tax bill on an investment sale is the federal rate plus your state rate, if your state has one.

Key Takeaways

  • Long-term capital gains (held over one year) are taxed at 0%, 15%, or 20% federally, depending on your total income for the year.
  • Short-term capital gains are taxed as ordinary income using the same brackets as wages, ranging from 10% to 37%.
  • The income thresholds that determine which rate applies are adjusted for inflation each year and differ for single filers, married couples, and heads of household.
  • Your state may add its own capital gains tax on top of the federal rate, or may not tax capital gains at all.

How the three long-term rates work in practice

The 0% bracket is the most misunderstood. You do not pay zero tax on all your gains if your income is low — you pay zero tax only on gains that fall within that bracket. If you are a single filer with $30,000 in wages and $20,000 in long-term capital gains, your total income is $50,000. The first $47,025 of that is taxed at 0%, and the remaining $2,975 is taxed at 15%. You do not jump straight to 15% on the whole gain.

The 15% bracket is where most investors land. If you are a single filer earning $100,000 in wages and sell a stock for a $50,000 gain, your total income is $150,000. The gain fills the 15% bracket from $47,025 up to $518,900, so the entire $50,000 is taxed at 15%.

The 20% bracket applies only to high-income filers. For a single filer, it kicks in above $518,900 of total income. For married couples filing jointly, it starts above $583,750. These thresholds are adjusted annually, so check the current year's numbers when you plan a sale.

Why short-term gains cost more in tax

Short-term capital gains are treated as ordinary income, which means they use the regular income tax brackets. A short-term gain of $50,000 is taxed the same way as a $50,000 bonus or raise. For most people, this means a much higher rate than long-term gains. If you are in the 24% income bracket, a short-term gain is taxed at 24%, while a long-term gain in the same situation would be taxed at 15%.

This is why holding an investment for more than one year before selling is often a tax strategy. The difference between short-term and long-term rates can be substantial. A $100,000 gain taxed as short-term at 24% costs $24,000 in federal tax. The same gain taxed as long-term at 15% costs $15,000 — a $9,000 difference on one transaction.

State capital gains taxes add to your federal bill

Nine states have a separate capital gains tax: California, Connecticut, Delaware, Illinois, Maryland, Minnesota, New Jersey, New York, and Washington. The rates vary widely. Washington has a 7% capital gains tax on long-term gains above $250,000. California taxes capital gains as ordinary income, which means rates run from 1% to 13.3% depending on your bracket. New York's rate is 5.85% on long-term gains.

Most other states tax capital gains as part of ordinary income, so your state income tax rate applies to both wages and gains. A few states — Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington (on ordinary income), and Wyoming — do not have an income tax at all, so there is no state capital gains tax.

When you sell an investment, you owe both the federal rate and your state rate. If you live in New York and sell a long-term gain, you pay 15% federal plus 5.85% state, for a combined 20.85%. In California, the combined rate depends on your income bracket but can exceed 20% on high earners.

How inflation adjustments change the brackets each year

The income thresholds for the 0%, 15%, and 20% rates are adjusted annually for inflation. The IRS publishes new numbers in October or November for the following tax year. This means the exact income level where you move from one bracket to another shifts slightly each year.

For example, the 15% bracket for single filers was $47,025 to $518,900 in 2024. In 2025, those numbers will be slightly higher because of inflation adjustment. If you are planning a large sale, check the current year's thresholds before you sell, because crossing into a higher bracket can change your tax bill significantly.

Losses can offset gains and reduce your tax bill

Capital losses work in the opposite direction. If you sell an investment at a loss, you can use that loss to offset capital gains from other sales in the same year. If you sell one stock for a $10,000 gain and another for a $3,000 loss, your net capital gain is $7,000, and you are taxed on $7,000, not $10,000.

If your losses exceed your gains in a year, you can deduct up to $3,000 of the net loss against ordinary income. Any loss beyond that carries forward to future years. This is called tax-loss harvesting — deliberately selling losing positions to offset gains and reduce your tax bill. It is a common strategy for investors with large portfolios.

Frequently Asked Questions

Do I pay capital gains tax on investments I have not sold yet?

No. You only owe capital gains tax when you sell an investment and realize the gain. Unrealized gains — the profit on stocks or funds you still own — are not taxed. This is why investors can hold appreciated assets for decades without paying tax until the moment they sell.

What if I inherit an investment — do I owe capital gains tax on it?

No, and this is a major tax advantage. When you inherit an investment, you receive a "step-up in basis," which means the tax value resets to what the investment was worth on the date of death. If your parent bought a stock for $10,000 and it was worth $50,000 when they died, your basis is $50,000, not $10,000. You only owe capital gains tax on gains that happen after you inherit it.

Can I reduce my capital gains tax by spreading the sale across two years?

Not automatically. The year you sell determines the year you owe the tax, regardless of when you receive the money. However, if a large sale would push you into a higher bracket, you might sell part of it in one year and part in the next to stay in a lower bracket both years. This requires planning with a tax professional.

Are dividends taxed the same way as capital gains?

may have access to dividends are taxed at the same rates as long-term capital gains (0%, 15%, or 20%), but ordinary dividends are taxed as ordinary income. Most dividends from stocks are may have access to if you held the stock for more than 60 days around the dividend date. Check your brokerage statement to see which type you received.