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

The federal tax rate on capital gains is either 0%, 15%, or 20% — but which one applies to you depends 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 for the year. Short-term gains are taxed as ordinary income, which means they use the same brackets as wages and can push you into a higher bracket. Long-term gains get preferential rates that are lower than ordinary income rates for most people.

Your state may also tax capital gains. Some states have no capital gains tax at all. Others tax long-term gains at the same rate as ordinary income, or impose a separate capital gains tax. The combined federal and state rate is what actually comes out of your proceeds.

Key Takeaways

  • Long-term capital gains (assets held over one year) are taxed at 0%, 15%, or 20% federally, depending on your total taxable income that year.
  • Short-term capital gains (assets held one year or less) are taxed as ordinary income at rates from 10% to 37%, the same as wages.
  • Your state may add its own capital gains tax or treat gains as ordinary income, so your total rate is federal plus state.
  • The income thresholds for each long-term rate change every year and differ based on filing status (single, married filing jointly, etc.).
  • Timing when you sell — and whether you have other income that year — can move you between tax brackets and change your effective rate.

Long-term capital gains rates and income thresholds

If you held an asset for more than one year, your gain qualifies for long-term treatment. The 0% rate applies to long-term gains if your taxable income falls below a certain threshold. For 2024, that threshold is $47,025 for single filers, $94,050 for married filing jointly, and $63,000 for head of household. These numbers adjust upward each year for inflation.

The 15% rate applies to long-term gains above those thresholds but below higher limits. For 2024, the 15% bracket ends at $518,900 for single filers and $1,037,800 for married filing jointly. Any long-term gain above those limits is taxed at 20%.

The thresholds matter because they determine whether your gain falls into the 0%, 15%, or 20% bracket. If you have $30,000 in long-term gains and $40,000 in wages, your total taxable income is $70,000. As a single filer, you stay under the $47,025 threshold for the 0% bracket, so you owe no federal tax on those gains. If you had $60,000 in wages instead, your total would be $90,000, pushing you into the 15% bracket for at least part of your gains.

Short-term capital gains and ordinary income rates

Short-term gains — from assets held one year or less — are taxed as ordinary income. This means they use the same tax brackets as your salary, wages, or self-employment income. Federal rates for 2024 range from 10% to 37% depending on your total income and filing status.

Short-term gains can push you into a higher bracket. If you earn $100,000 in wages and realize $50,000 in short-term gains, your taxable income is $150,000. That $50,000 is taxed at the marginal rate that applies to income above $100,000, which may be higher than the rate on your first $100,000. This is why the timing of a sale matters: selling in a year when you have less other income can keep you in a lower bracket.

Because short-term gains use ordinary income rates, they are almost always more expensive than long-term gains. The difference between 15% (long-term) and 37% (short-term, top bracket) is substantial. This is one reason tax planning often focuses on holding assets long enough to may have access to for long-term treatment.

How state taxes add to your federal rate

Nine states 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, your capital gains are subject only to federal tax.

Most other states tax capital gains as ordinary income, meaning your state rate is whatever bracket your total income puts you in. A few states — California, Hawaii, Illinois, Iowa, Maine, Minnesota, Missouri, New Jersey, New Mexico, New York, Oregon, Vermont, and Washington D.C. — have separate capital gains taxes or higher rates on gains. California, for example, taxes long-term gains at the same rate as ordinary income, which can reach 13.3% at the top bracket. New Jersey has a separate 7% tax on long-term gains over $250,000.

Your total tax bill is federal plus state. If you live in New York and have $100,000 in long-term gains, you owe 15% federal (assuming you fall in that bracket) plus New York's rate on that income, which could be 6.85% or higher depending on your total income. That is 21.85% or more, not 15%.

How your total income affects your rate

Capital gains do not sit in isolation. They are added to your other income — wages, self-employment income, interest, dividends, rental income — to determine your total taxable income for the year. That total is what determines which tax bracket you fall into.

This creates a planning opportunity. If you have a year with lower income — perhaps you took unpaid leave, retired mid-year, or had a business loss — you may be able to realize capital gains at a lower rate than you would in a high-income year. Conversely, if you have a very high-income year, you might defer selling appreciated assets until the following year when your income is lower.

The same logic applies to bunching deductions or timing retirement account withdrawals. Every dollar of income you avoid in a given year can keep you in a lower bracket for capital gains realized that year. This is why some people coordinate the timing of asset sales with major life changes like retirement or a sabbatical.

The difference between holding period and tax rate

The one-year holding period is the dividing line between short-term and long-term treatment. You must own the asset for more than one year — not exactly one year, but longer. If you buy a stock on January 15 and sell it on January 15 the following year, it is still short-term. You need to sell on January 16 or later to may have access to as long-term.

The holding period is measured from the date you acquire the asset to the date you sell it. For stocks and mutual funds, the acquisition date is the settlement date, not the trade date. For inherited assets, you get a stepped-up basis and the holding period is automatically long-term, regardless of how long the deceased owned it.

Holding period and income level are separate calculations. You can have long-term gains but still owe 20% if your income is very high. You can have short-term gains and owe 10% if your income is low. The rate depends on both factors together.

When to consider timing your sales

Tax-loss harvesting and timing of gains are most useful when you have control over when you sell. If you are selling a concentrated position in company stock, or liquidating a real estate investment, you can often choose the year. Selling in a lower-income year — or splitting the sale across two years — can reduce your rate.

This strategy is most valuable when the difference between your rates is large. If you are in the 37% short-term bracket and can defer a sale until you retire and fall into the 15% long-term bracket, the tax savings can be substantial. If you are already in the 0% long-term bracket, there is no benefit to deferring.

Timing also matters for losses. If you have a capital loss, you can use it to offset gains dollar-for-dollar, and any excess loss can offset up to $3,000 of ordinary income. Realizing a loss in a high-income year can be more valuable than realizing it in a low-income year, because the $3,000 ordinary income offset is worth more when your marginal rate is higher.

Frequently Asked Questions

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

No federal tax is owed on a loss. You can use the loss to offset capital gains from other sales, and any remaining loss can offset up to $3,000 of ordinary income in that year. Losses beyond $3,000 carry forward to future years indefinitely.

What if I inherit an asset — do I owe capital gains tax on the increase in value while the person owned it?

No. Inherited assets receive a stepped-up basis, meaning your cost basis is the fair market value on the date of death, not what the deceased paid. If you sell the inherited asset shortly after, you owe tax only on gains that occur after you inherit it. The appreciation during the deceased's lifetime is never taxed.

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

Yes. If you donate appreciated securities or real estate directly to a may have access to charity, you avoid the 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 and donating the proceeds.

How do dividends fit into capital gains tax?

may have access to dividends are taxed at the same long-term capital gains rates (0%, 15%, or 20%) if you held the stock for at least 60 days around the dividend date. Non-may have access to dividends are taxed as ordinary income. This is separate from capital gains on the sale of the stock itself.

What if I sell an asset at a gain in one state and move to another — which state taxes me?

Generally, the state where you lived when you sold the asset taxes the gain. If you sold while a resident of New York and then moved to Florida, New York may still claim tax on the sale. Some states have specific rules for residents who move; consult a tax professional if you are relocating around a large sale.