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Capital Gains Tax: How It Works, Rates and Calculator

Capital gains are the profits you get when you sell an asset. Capital gains can be subject to either short-term tax rates or long-term tax rates, depending on how long you owned the asset.
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What are capital gains?

Most items people own are considered "capital assets" by the IRS. This can include investments (such as stocks, bonds, cryptocurrency or real estate) and personal and tangible items (such as cars or boats).

When you sell a capital asset for a higher price than its original value, the money you make on that sale is called a capital gain. On the other hand, when you sell an asset for less than its original value, the money you lose is known as a capital loss.

The difference between your capital gains and your capital losses is your profit, or your net capital gain. For example, if you sold a stock for a $10,000 profit this year and sold another at a $4,000 loss, your net capital gain is $6,000.

» Having trouble deciding whether to sell? A qualified financial advisor can help.

What are capital gains taxes?

Capital gains taxes are levied on the profit from the sale of an asset. Similar to income taxes, capital gains taxes are progressive, but how the money is taxed also depends on what you sold, how long you owned it before selling, your taxable income and your filing status.

Holding onto an asset for more than a year before selling generally results in a more favorable tax treatment.

» Selling a home? Taxes on the sale of a home can work differently.

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How do capital gains taxes work?

Capital gains can be subject to either short-term tax rates or long-term tax rates. Short-term capital gains are taxed according to ordinary income tax brackets, which range from 10% to 37%. Long-term capital gains are taxed at 0%, 15%, or 20%.

Some exceptions:

  • High-earning individuals may also need to account for the net investment income tax (NIIT), an additional 3.8% tax that can be triggered if your income exceeds a certain limit.

» Dive deeper: See the federal income tax brackets.

What is long-term capital gains tax?

Long-term capital gains tax is a tax on profits from the sale of an asset held for more than a year. The rates are 0%, 15% or 20%, depending on your taxable income and filing status. Per the IRS, most people pay no more than 15% on their realized long-term capital gains

Internal Revenue Service. Topic No. 409, Capital Gains and Losses. Accessed Apr 30, 2024.
.

What is short-term capital gains tax?

Short-term capital gains tax is a tax on profits from the sale of an asset held for one year or less. Short-term capital gains are taxed according to your ordinary income tax bracket: 10%, 12%, 22%, 24%, 32%, 35% or 37%.

» Ready to crunch the numbers? Try our capital gains tax calculator.

Capital gains tax rate 2024

In 2024, single filers making less than $47,026 in taxable income, joint filers making less than $94,051, and heads of households making $63,000 or less pay 0% on qualified realized long-term gains.

If your taxable income exceeds those amounts, you may be subject to 15% and 20% tax rates. Short-term capital gains held for a year or less are taxed at regular income tax rates.

The following rates and brackets apply to long-term capital gains sold in 2024 (reported on taxes filed in 2025).

Filing status

0%

15%

20%

Single

$0 to $47,025

$47,026 to $518,900

$518,901 or more

Married filing jointly

$0 to $94,050

$94,051 to $583,750

$583,751 or more

Married filing separately

$0 to $47,025

$47,026 to $291,850

$291,851 or more

Head of household

$0 to $63,000

$63,001 to $551,350

$551,351 or more

Short-term capital gains are taxed as ordinary income according to federal income tax brackets.

Capital gains tax rate 2023

If you still need to file your 2023 tax return, see the long-term capital gains tax rates that apply to assets sold for a profit in 2023, which are reported on tax returns that were due April 15, 2024, or Oct. 15, 2024, with an extension.

Filing status

0%

15%

20%

Single

$0 to $44,625

$44,626 to $492,300

$492,301 or more

Married filing jointly

$0 to $89,250

$89,251 to $553,850

$553,851 or more

Married filing separately

$0 to $44,625

$44,626 to $276,900

$276,901 or more

Head of household

$0 to $59,750

$59,751 to $523,050

$523,051 or more

Short-term capital gains are taxed as ordinary income according to federal income tax brackets.

Capital gains tax calculator

Use this capital gains calculator to estimate your taxes on assets sold in 2023 (taxes filed in 2024).

How to avoid or reduce capital gains taxes

1. Hold on

Whenever possible, hold an asset for longer than a year so you can qualify for the long-term capital gains tax rate, because it's significantly lower than the short-term capital gains rate for most assets. Our capital gains tax calculator shows how much that could save.

» Dive deeper: Read more about taxes on stocks, and how to pay less.

2. Use tax-advantaged accounts

These include 401(k) plans, individual retirement accounts and 529 college savings accounts, in which the investments grow tax-free or tax-deferred. That means you don’t have to pay capital gains tax if you sell investments within these accounts. Roth IRAs and 529 accounts in particular have big tax advantages. If you follow the account rules, you can withdraw money from those accounts tax-free. With traditional IRAs and 401(k)s, your money grows tax-deferred, then you pay taxes when you take distributions in retirement.

» Learn more about different retirement accounts.

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3. Rebalance with dividends

Rather than reinvest dividends in the investment that paid them, rebalance by putting that money into your underperforming investments. Typically, you'd rebalance by selling securities that are doing well and putting that money into those that are underperforming. But using dividends to invest in underperforming assets will allow you to avoid selling strong performers — and thus avoid the capital gains that would come from that sale.

» Learn more about the dividend tax rate and how it works.

4. Use the home sales exclusion

If you sold a house the previous year, you may be able to exclude a portion of the gains from that sale on your taxes. To qualify, you must have owned your home and used it as your main residence for at least two years in the five-year period before you sell it. You also must not have excluded another home from capital gains in the two-year period before the home sale. If you meet those rules, you can exclude up to $250,000 in gains from a home sale if you’re single, and up to $500,000 if you’re married filing jointly.

» Learn more about how capital gains on home sales work.

5. Look into tax-loss harvesting

The IRS taxes your net capital gain, which is simply your total long- or short-term capital gains (investments sold for a profit) minus the corresponding long- or short-term total capital losses (investments sold at a loss). The strategic practice of selling off specific assets at a loss to offset gains is called tax-loss harvesting. This strategy has many rules and isn't right for everyone, but it can help to reduce your taxes by lowering the amount of your taxable gains.

If your net capital loss exceeds your net capital gains, you can also offset your ordinary income by up to $3,000 ($1,500 for those married filing separately). Any additional losses can be carried forward to future years to offset capital gains or up to $3,000 of ordinary income per year.

6. Consider a robo-advisor

Robo-advisors manage your investments for you automatically, and they often employ smart tax strategies, including tax-loss harvesting, as a part of the service. » Ready to get started? See our picks for best robo-advisors.

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