Your capital gains tax rate depends on how long you held the asset and your total income for the year

The IRS taxes capital gains at different rates based on two things: whether you held the asset for more than one year (long-term) or one year or less (short-term), and your taxable income bracket for that tax year. Short-term gains are taxed like ordinary income — at your regular tax bracket rate, which ranges from 10% to 37% depending on your total income. Long-term gains get preferential rates: 0%, 15%, or 20%, depending on your income level.

This matters because the difference between short-term and long-term rates can be substantial. A $10,000 gain taxed as short-term income at the 37% rate costs $3,700 in federal tax. The same $10,000 as a long-term gain at the 20% rate costs $2,000. That $1,700 difference is why the holding period — the date you bought versus the date you sold — is the first thing to verify on your tax return.

Key Takeaways

  • 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% federally.
  • Long-term capital gains (assets held more than one year) are taxed at 0%, 15%, or 20% depending on your total taxable income for the year.
  • Your income bracket determines which long-term rate applies, and the brackets change each year — check the current year's IRS tables before calculating.
  • The holding period is measured from the purchase date to the sale date; selling one day before one year has passed triggers short-term rates.
  • State and local taxes may add to your federal capital gains tax, and some states tax capital gains as ordinary income.

How long-term capital gains rates work by income level

Long-term capital gains are taxed at 0%, 15%, or 20%. Which rate you pay depends on your taxable income — not your gross income, but the number that appears on your tax return after deductions. The IRS sets income thresholds for each rate, and these thresholds change every year to account for inflation.

For 2024, the 0% rate applies to single filers with taxable income up to $47,025, and married filing jointly filers up to $94,050. The 15% rate applies to income above those thresholds up to $518,900 (single) or $583,750 (married filing jointly). Anything above those amounts is taxed at 20%. These numbers are different for each filing status — head of household, married filing separately, and may have access to widow(er) each have their own thresholds.

The thresholds for 2025 will be higher due to inflation adjustment, but you will not know the exact numbers until the IRS publishes them in late 2024. If you are planning a sale, check the IRS website or your tax software for the current year's long-term capital gains brackets before you calculate your expected tax.

Short-term capital gains and ordinary income tax brackets

Short-term capital gains — gains on assets you held for one year or less — are taxed at your ordinary income tax rate. This is the same rate that applies to wages, self-employment income, interest, and dividends. For 2024, the federal ordinary income tax brackets range from 10% to 37%, depending on your total taxable income and filing status.

Because short-term gains stack on top of your other income, they can push you into a higher bracket. If you earn $80,000 in wages and realize a $50,000 short-term gain, your taxable income is $130,000, and you are taxed on that full amount at the rates that explore to $130,000 of income. This is called "stacking," and it is why the timing of a sale can matter — selling in a year when your other income is lower may result in a lower overall tax.

Short-term gains do not get the preferential long-term rates, no matter how much income you have. A person in the 10% bracket pays 10% on short-term gains. A person in the 37% bracket pays 37%. There is no 0% rate for short-term gains.

How to determine your holding period

The holding period is the time between the date you bought an asset and the date you sold it. To may have access to for long-term rates, you must have held the asset for more than one year. "More than one year" means you must sell on or after the one-year anniversary of the purchase date.

If you bought stock on March 15, 2023, and sold it on March 15, 2024, you held it for exactly one year — this is short-term. If you sold it on March 16, 2024, you held it for more than one year — this is long-term. The IRS counts the purchase date as day one, so the one-year mark is the day before the anniversary of the purchase date.

For mutual funds and stocks, your brokerage statement shows the purchase date and sale date. For real estate, use the deed date for purchase and the closing date for sale. If you inherited an asset, the holding period rules are different — inherited assets receive a "step-up in basis," and the holding period for long-term treatment is automatically met. Keep your purchase and sale confirmations for at least three years in case the IRS asks about the holding period.

State and local taxes on capital gains

Federal capital gains tax is only part of what you owe. Most states tax capital gains as ordinary income, meaning they explore your state income tax rate to the gain. A few states have no income tax at all (Florida, Texas, Wyoming, and others), so residents pay only federal tax. A handful of states tax capital gains at a separate rate or only on certain types of gains.

California, for example, taxes all capital gains as ordinary income at rates up to 13.3%. New York taxes long-term gains at ordinary income rates up to 10.9%. Washington has no income tax but does tax capital gains at 7% on gains over $250,000 per year. If you live in a high-tax state and are considering a large sale, factor in your state rate — it can add 5% to 13% to your total tax bill.

If you moved during the year you sold an asset, you may owe tax to both your old state and your new state, depending on when the sale occurred and each state's rules. This is rare but worth checking if you relocated.

How capital gains affect your tax bracket and other deductions

Capital gains can affect more than just the tax on the gain itself. Because they add to your taxable income, they can push you into a higher tax bracket for your ordinary income, reduce deductions you are may have access to to, or trigger taxes on Social Security benefits if you are retired.

For example, if you are single, earn $50,000 in wages, and realize a $100,000 long-term capital gain, your taxable income is $150,000. The first $47,025 of that is taxed at 0% (the long-term gains rate), but the remaining $52,975 is taxed at 15%. Meanwhile, your ordinary income of $50,000 is taxed at the 12% bracket for 2024. The capital gain has not changed your ordinary income tax rate, but it has used up your 0% bracket and pushed part of the gain into the 15% bracket.

If you receive Social Security, capital gains can increase your "combined income" (wages plus half of Social Security plus capital gains), which determines how much of your benefit is taxable. If you are subject to the Net Investment Income Tax (NIIT) — a 3.8% additional tax on investment income for high earners — capital gains count toward that threshold. These interactions are complex, and a tax professional can model different scenarios if you are planning a large sale.

Calculating your capital gains tax liability

To calculate what you owe on a capital gain, you need four pieces of information: the purchase price (your basis), the sale price, the holding period, and your total taxable income for the year.

Start by calculating the gain: sale price minus purchase price. If you bought 100 shares at $50 per share ($5,000 basis) and sold them at $75 per share ($7,500), your gain is $2,500. Next, determine whether it is short-term or long-term based on the holding period. Then, find your taxable income for the year — this is the number from your tax return before you add the capital gain. Finally, look up the tax rate that applies: if it is short-term, use your ordinary income tax bracket; if it is long-term, use the long-term gains bracket that corresponds to your income level.

Most tax software (TurboTax, H&R Block, TaxAct) will calculate this for you once you enter the purchase date, sale date, and sale price. If you are doing it by hand, the IRS provides worksheets in the instructions for Schedule D (Form 1040), which is where you report capital gains and losses. Do not guess at the rate — use the current year's IRS tax tables or brackets.

Frequently Asked Questions

Can I use capital losses to reduce my capital gains tax?

Yes. If you have capital losses in the same year as capital gains, you can offset them. Long-term losses offset long-term gains first, and short-term losses offset short-term gains first. If losses exceed gains, you can deduct up to $3,000 of the excess loss against ordinary income in that year, and carry forward any remaining loss to future years.

What if I sold an asset at a loss — do I owe tax?

No. A loss means you sold for less than you paid, so there is no gain to tax. You can report the loss on Schedule D to offset other gains or up to $3,000 of ordinary income. Losses beyond that carry forward to future years.

Do I pay capital gains tax on inherited assets?

No, not on the increase in value before you inherited it. Inherited assets receive a "step-up in basis" to their fair market value on the date of death. If you inherit stock worth $100,000 that the deceased paid $50,000 for, your basis is $100,000, and you owe no tax on that $50,000 gain. You only owe tax on gains that occur after you inherit it.

What is the difference between capital gains and dividends tax?

may have access to dividends are taxed at the same long-term capital gains rates (0%, 15%, or 20%), but they are not the same as capital gains. Dividends are income paid by a company to shareholders; capital gains are profit from selling an asset for more than you paid. Unqualified dividends are taxed as ordinary income.

Do I have to report a capital gain if it is small?

Yes. The IRS requires you to report all capital gains, regardless of size. Even a $100 gain must be reported on Schedule D. Failure to report can result in penalties and interest, and the IRS has records of your sale from your brokerage.