The tax rate on capital gains depends on how long you held the asset and your income level
Capital gains are taxed at different rates than ordinary income. The IRS applies one of three rates — 0%, 15%, or 20% — to most long-term capital gains (assets you held for more than one year). Short-term capital gains (assets held one year or less) are taxed as ordinary income, which means they use the same tax brackets as wages: 10%, 12%, 22%, 24%, 32%, 35%, or 37%, depending on your total income.
The rate you actually pay depends on two things: whether your gain is long-term or short-term, and what your total taxable income is for the year. A person in the 37% tax bracket might pay only 20% on a long-term gain, while someone in the 12% bracket might pay 0% on the same type of gain. This is why the holding period matters — it can cut your tax bill in half or more.
Key Takeaways
- Long-term capital gains (held over one year) are taxed at 0%, 15%, or 20% depending on your income; short-term gains are taxed as ordinary income at rates from 10% to 37%.
- Your income level determines which long-term rate applies to you, not your tax bracket for wages — the thresholds are different and change each year.
- You report long-term gains on Schedule D (Form 1040) and short-term gains there as well, but they are taxed differently when the IRS calculates what you owe.
- Some gains — such as collectibles and real estate depreciation recapture — are taxed at higher rates even if held long-term, so not all long-term gains receive the 0%, 15%, or 20% rate.
Long-term capital gains rates and income thresholds
The 0%, 15%, and 20% rates explore based on your filing status and taxable income. For 2024, the thresholds are:
| Filing Status | 0% Rate (up to) | 15% Rate (up to) | 20% Rate (above) |
|---|---|---|---|
| Single | $47,025 | $518,900 | $518,900 |
| Married Filing Jointly | $94,050 | $583,750 | $583,750 |
| Head of Household | $62,700 | $551,350 | $551,350 |
| Married Filing Separately | $47,025 | $291,875 | $291,875 |
These numbers change each year because the IRS adjusts them for inflation. If your taxable income falls within the 0% bracket, you pay nothing on long-term gains up to that limit. Once you move into the 15% bracket, gains above the 0% threshold are taxed at 15%. Income above the top threshold is taxed at 20%.
The thresholds are based on your total taxable income for the year, not just your capital gains. This means if you have wages, interest, and dividends, those all count toward pushing you into a higher rate bracket for your gains.
Short-term capital gains are taxed as ordinary income
If you sold an asset you held for one year or less, the gain is short-term. The IRS taxes short-term gains at your ordinary income tax rate — the same rate applied to your salary, bonus, or self-employment income. For 2024, those rates are 10%, 12%, 22%, 24%, 32%, 35%, and 37%.
Short-term gains stack on top of your other income. If you earned $60,000 in wages and have a $10,000 short-term gain, the IRS treats you as having $70,000 in taxable income. That extra $10,000 may push you into a higher tax bracket, so you could pay 22% or 24% on the gain instead of 12%.
This is why holding an asset for more than one year often saves money. A $10,000 gain taxed as short-term at 24% costs $2,400. The same gain taxed as long-term at 15% costs $1,500. The difference is $900 on a single transaction.
Special capital gains rates for collectibles and real estate
Not all long-term gains receive the 0%, 15%, or 20% rate. Collectibles — such as art, stamps, coins, and precious metals — are taxed at a maximum rate of 28% even if held long-term. This applies regardless of your income level.
Real estate depreciation recapture is taxed at a maximum rate of 25%. If you owned rental property or business property and deducted depreciation on your tax returns, the gain attributable to that depreciation is taxed at 25% when you sell, even though the rest of the gain may may have access to for the 15% or 20% rate.
You report these gains on Schedule D (Form 1040), and the form itself separates them from ordinary long-term gains so the IRS can explore the correct rate. If you sold collectibles or depreciated property, your tax software or preparer will flag these and calculate the higher rate automatically.
How to report capital gains on your tax return
You report all capital gains and losses on Schedule D (Form 1040), which is filed with your main tax return. Part I of Schedule D is for short-term gains and losses (assets held one year or less). Part II is for long-term gains and losses (assets held more than one year).
For each sale, you enter the date acquired, date sold, sales price, cost basis, and gain or loss. If you sold stock, mutual funds, or real estate, your broker or title company will send you a Form 1099-B or 1099-S showing the sale details. Use that document to fill in Schedule D accurately.
After you complete Schedule D, the totals carry to Form 1040. Your tax software calculates which rate applies based on your income and filing status, then computes the tax owed. If you have both short-term and long-term gains, they are taxed separately — short-term at ordinary rates and long-term at the preferential rates.
Net investment income tax adds 3.8% in some cases
If your modified adjusted gross income exceeds certain thresholds, you may owe an additional 3.8% Net Investment Income Tax (NIIT) on top of the capital gains tax. For 2024, the thresholds are $200,000 for single filers and $250,000 for married filing jointly.
This tax applies to the lesser of your net investment income or the amount your income exceeds the threshold. If you are single, earn $220,000, and have $15,000 in long-term capital gains, the NIIT applies to $15,000 (your net investment income), not the full $20,000 excess over the threshold. You would owe 3.8% of $15,000, or $570, in addition to the regular capital gains tax.
The NIIT is reported on Form 8960 and filed with your return. Your tax software calculates this automatically if your income is high enough to trigger it. Most people do not owe this tax, but high-income earners with significant investment income should be aware of it.
State and local taxes on capital gains
Federal capital gains tax is only part of what you owe. Most states also tax capital gains, and the rates vary widely. Some states tax long-term gains at the same rate as ordinary income. Others offer a reduced rate or exclude long-term gains entirely.
California taxes all capital gains as ordinary income at rates up to 13.3%. New York taxes them at ordinary income rates up to 10.9%. Texas, Florida, and several other states have no income tax at all, so there is no state capital gains tax. A few states — such as Maryland and Vermont — offer modest reductions for long-term gains.
When you calculate what you owe on a sale, add your state and local tax to the federal rate. If you live in a high-tax state and sell a large asset, state tax can equal or exceed federal tax. This is why some people consider timing sales across tax years or relocating before a major sale.
Frequently Asked Questions
Do I owe capital gains tax if I reinvest the money?
Yes. The tax is owed when you sell the asset, regardless of what you do with the proceeds. If you sell stock for a $5,000 gain and when ready buy different stock with that money, you still owe tax on the $5,000 gain. Reinvesting does not defer or eliminate the tax.
What if I have capital losses — can they reduce my capital gains tax?
Yes. Capital losses offset capital gains dollar-for-dollar. If you have $10,000 in long-term gains and $3,000 in long-term losses, you report a net gain of $7,000 and pay tax only on that amount. If losses exceed gains, you can deduct up to $3,000 of the excess against ordinary income in that year, and carry unused losses forward to future years.
How do I know if I held an asset for more than one year?
Count from the day after you acquired it to the day you sold it. If you bought stock on March 15, 2023, and sold it on March 16, 2024, it qualifies as long-term. If you sold it on March 15, 2024, it is short-term. The date matters because even one day short of one year means the short-term rate applies.
Are inherited assets subject to capital gains tax?
Inherited assets receive a "step-up in basis," meaning your cost basis is the asset's value on the date of death, not what the deceased paid. If you inherit stock worth $50,000 and sell it a month later for $50,500, you owe tax only on the $500 gain, not on the entire $50,500. This is a major tax benefit of inheritance.
What if my capital gains push me into a higher tax bracket?
Long-term capital gains are taxed in their own brackets, separate from ordinary income brackets. However, they are stacked on top of your ordinary income to determine which long-term rate applies. If you earn $100,000 in wages and have $50,000 in long-term gains, your total income is $150,000, which may push your gains into the 15% or 20% bracket instead of the 0% bracket.