A Guide to the Capital Gains Tax Rate: Short-term vs. Long-term Capital Gains Taxes (2024)

Written by a TurboTax Expert • Reviewed by a TurboTax CPAUpdated for Tax Year 2023 • December 22, 2023 7:06 AM

OVERVIEW

This guide can help you better understand the different rules that apply to various types of capital gains, which are typically profits made from taxpayers’ sale of assets and investments.

A Guide to the Capital Gains Tax Rate: Short-term vs. Long-term Capital Gains Taxes (5)

Key Takeaways

  • Profits you make from selling most assets are known as capital gains, and they are generally taxed at different rates depending on how long you have held the asset.
  • Gains you make from selling assets you’ve held for a year or less are called short-term capital gains, and they generally are taxed at the same rate as your ordinary income, anywhere from 10% to 37%.
  • Gains from the sale of assets you’ve held for longer than a year are known as long-term capital gains, and they are typically taxed at lower rates than short-term gains and ordinary income, from 0% to 20%, depending on your taxable income.
  • If your investments end up losing money rather than generating gains, you can typically use those losses to reduce your taxes.

Capital gain taxes

The U.S. Government taxes different kinds of income at different rates. Some types of capital gains, such as profits from the sale of a stock that you have held for a long time, are generally taxed at a more favorable rate than your salary or interest income. However, not all capital gains are treated equally. The tax rate can vary dramatically between short-term and long-term gains. Understanding the capital gains tax rate is an important step for most investors.

What is a capital gain?

Capital gains are profits you make from selling an asset. Typical assets include businesses, land, cars, boats, and investment securities such as stocks and bonds. Selling one of these assets can trigger a taxable event. This often requires that the capital gain or loss on that asset be reported to the IRS on your income taxes.

What's the difference between a short-term and long-term capital gain or loss?

Generally, capital gains and losses are handled according to how long you've held a particular asset – known as the holding period. Profits you make from selling assets you’ve held for a year or less are called short-term capital gains. Alternatively, gains from assets you’ve held for longer than a year are known as long-term capital gains. Typically, there are specific rules and different tax rates applied to short-term and long-term capital gains. In general, you will pay less in taxes on long-term capital gains than you will on short-term capital gains. Likewise, capital losses are also typically categorized as short term or long term using the same criteria.

What is the short-term capital gains tax rate?

You typically do not benefit from any special tax rate on short-term capital gains. Instead, these profits are usually taxed at the same rate as your ordinary income. This tax rate is based on your income and filing status. Other items to note about short-term capital gains:

  • The holding period begins ticking from the day after you acquire the asset, up to and including the day you sell it.
  • Ordinary tax rates range from 10% to 37%, depending on your income and filing status.

2023 Short-Term Capital Gains Tax Rates

Tax Rate10%12%22%24%32%35%37%
Filing Status

Taxable Income

SingleUp to $11,000$11,001 to $44,725$44,726 to $95,375$95,376 to $182,100$182,101 to $231,250$231256 to $578,125Over $578,125
Head of householdUp to $15,700$15,701 to $59,850$59,851 to $95,350$95,351 to $182,100$182,101 to $231,250$231,251 to $578,100Over $578,100
Married filing jointlyUp to $22,000$22,001 to $89,450$89,451 to $190,750$190,751 to $364,200$364,201 to $462,500$462,501 to $693,750Over $693,750
Married filing separatelyUp to $11,000$11,001 to $44,725$44,726 to $95,375$95,376 to $182,100$182,101 to $231,250$231,251 to $346,875Over $346,875

2024 Short-Term Capital Gains Tax Rates

Tax Rate10%12%22%24%32%35%37%
Filing Status

Taxable Income

SingleUp to $11,600$11,601 to $47,150$47,151 to $100,525$100,526 to $191,950$191,951 to $243,725$243,726 to $609,350Over $609,350
Head of householdUp to $16,550$16,551 to $63,100$63,101 to $100,500$100,501 to $191,950$191,951 to $243,700$243,701 to $609,350Over $609,350
Married filing jointlyUp to $23,200$23,201 to $94,300$94,301 to $201,050$201,051 to $383,900$383,901 to $487,450$487,451 to $731,200Over $731,200
Married filing separatelyUp to $11,600$11,601 to $47,150$47,151 to $100,525$100,526 to $191,950$191,951 to $243,725$243,726 to $365,600Over $365,600

TurboTax Tip:

One major exception to the capital gains tax rate on real estate profits is from the sale of your principal residence. If you have owned your home and used it as your main residence for at least two of the last five years prior to selling it, then you can usually exclude up to $250,000 of capital gains on this type of real estate sale if you're single, and up to $500,000 if you're married and filing jointly.

What is the long-term capital gains tax rate?

If you hold your assets for longer than a year, you can often benefit from a reduced tax rate on your profits. Those in the lower tax bracket could pay nothing for their capital gains rate, while high-income taxpayers could save as much as 17% off the ordinary income rate, according to the IRS.

2023 Long-Term Capital Gains Tax Rates

Tax Rate

0%15%20%
Filing StatusTaxable Income
SingleUp to $44,625$44,626 to $492,300Over $492,300
Head of householdUp to $59,750$59,751 to $523,050Over $523,050
Married filing jointlyUp to $89,250$89,251 to $553,850Over $553,850
Married filing separatelyUp to $44,625$44,626 to $276,900Over $276,900

2024 Long-Term Capital Gains Tax Rates

Tax Rate

0%15%20%
Filing StatusTaxable Income
SingleUp to $47,025$47,026 to $518,900Over $518,900
Head of householdUp to $63,000$63,001 to $551,350Over $551,350
Married filing jointlyUp to $94,050$94,051 to $583,750Over $583,750
Married filing separatelyUp to $47,025$47,025 to $291,850Over $291,850

What are the exceptions to the capital gains tax rate for long-term gains?

One major exception to a reduced long-term capital gains rate applies to collectible assets, such as antiques, fine art, coins, or even valuable vintages of wine. Typically, any profits from the sale of these collectibles will be taxed at 28% regardless of how long you have held the item.

Another major exception comes from the Net Investment Income Tax (NIIT), which adds a 3.8% surtax to certain investment sales by individuals, estates, and trusts above a set threshold. Typically, this surtax applies to those with high incomes who also have a significant amount of capital gains from investment, interest, and dividend income.

What is the capital gains rate for retirement accounts?

One of the many benefits of IRAs and other retirement accounts is that you can defer paying taxes on capital gains. Whether you generate a short-term or long-term gain in your IRA, you don’t have to pay any tax until you take money out of the account.

The negative side is that all contributions and earnings you withdraw from a taxable IRA or other taxable retirement accounts, even profits from long-term capital gains, are typically taxed as ordinary income. So, while retirement accounts offer tax deferral, they do not benefit from lower long-term capital gains rates.

How can capital losses affect your taxes?

As previously mentioned, different tax rates apply to short-term and long-term gains. However, if your investments end up losing money rather than generating gains, those losses can affect your taxes as well. However, in this case, you can use those losses to reduce your taxes. The IRS allows you to match up your gains and losses for any given year to determine your net capital gain or loss.

  • If after fully reducing your gains with your losses and you end up with a net loss, you can use up to $3,000 of it per year to reduce your other taxable income.
  • Any additional losses can be carried forward into future years to offset capital gains and up to $3,000 per year of ordinary income.
  • Since you don't generate capital gains or losses in a retirement account, you can't use losses in IRAs or 401(k) plans to offset gains or your other income.

How can you minimize capital gains taxes?

There are several ways you can minimize the taxes you pay on capital gains:

  1. Wait to sell assets. If you can keep an asset for more than a year before selling, this can usually result in paying a lower capital gains rate on that profit.
  2. Invest in tax-free or tax-deferred accounts. By investing money in 401(k) plans, Roth IRA accounts, and 529 college savings plans, you could save significantly in taxes. This is because these investments are able to grow tax-free or tax-deferred, meaning that you won't have to pay capital gains taxes on any earnings right away — and in certain circumstances, you won’t pay any tax even when you take the money out.
  3. Don't sell your home too quickly. One major exception to the capital gains tax rate on real estate profits is your principal residence. If you have owned your home and used it as your main residence for at least two of the five years prior to selling it, then you can usually exclude up to $250,000 of capital gains on this type of real estate if you're single, and up to $500,000 if you're married and filing jointly. It's also important to note that you typically can't take the full exclusion on multiple home sales from capital gains taxes within two years.

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A Guide to the Capital Gains Tax Rate: Short-term vs. Long-term Capital Gains Taxes (2024)

FAQs

A Guide to the Capital Gains Tax Rate: Short-term vs. Long-term Capital Gains Taxes? ›

Short-term capital gains taxes are paid at the same rate as you'd pay on your ordinary income, such as wages from a job. Long-term capital gains tax is a tax applied to assets held for more than a year. The long-term capital gains tax rates are 0 percent, 15 percent and 20 percent, depending on your income.

What is the tax difference between short and long term capital gains? ›

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%.

What is the difference between the tax rate for short-term capital gains and long term capital gains quizlet? ›

The maximum rate for long-term capital gains is 15% or 20% (15% for individuals who are not in the maximum tax bracket; 20% for individuals who are in the maximum tax bracket). Short-term capital gains are taxed at the same rate as ordinary income, which is currently a maximum of 37%.

What is the tax rate for short-term capital gains? ›

Gains you make from selling assets you've held for a year or less are called short-term capital gains, and they generally are taxed at the same rate as your ordinary income, anywhere from 10% to 37%.

Do short-term capital gains increase your tax bracket? ›

Long-term capital gains can't push you into a higher tax bracket, but short-term capital gains can. Understanding how capital gains work could help you avoid unintended tax consequences. If you're seeing significant growth in your investments, you may want to consult a financial advisor.

How do I avoid short-term capital gains tax? ›

Here are four of the key strategies.
  1. Hold onto taxable assets for the long term. ...
  2. Make investments within tax-deferred retirement plans. ...
  3. Utilize tax-loss harvesting. ...
  4. Donate appreciated investments to charity.

Is short-term capital gains taxed the same as income? ›

Short-term capital gains are included with your other ordinary income to help determine how much you pay in taxes overall. The 2024 tax brackets are 10 percent, 12 percent, 22 percent, 24 percent, 32 percent, 35 percent, and 37 percent.

How do I calculate my capital gains tax? ›

Capital gain calculation in four steps
  1. Determine your basis. ...
  2. Determine your realized amount. ...
  3. Subtract your basis (what you paid) from the realized amount (how much you sold it for) to determine the difference. ...
  4. Review the descriptions in the section below to know which tax rate may apply to your capital gains.

Why is the distinction between short-term and long-term capital gains important? ›

This distinction is important because it can have a significant impact on your tax liability. For instance, if you sell an asset after holding it for more than a year, you will be subject to long-term capital gains tax rates, which are generally lower than short-term rates.

Are long-term capital gains taxed at the same rate as earned income True or false? ›

The most important thing to understand is that long-term realized capital gains are subject to a substantially lower tax rate than ordinary income. This means that investors have a big incentive to hold appreciated assets for at least a year and a day, qualifying them as long-term and for the preferential rate.

How is capital gains tax calculated on sale of property? ›

Broadly speaking, capital gains tax is the tax owed on the profit (aka, the capital gain) you make when you sell an investment or asset. It is calculated by subtracting the asset's original cost or purchase price (the “tax basis”), plus any expenses incurred, from the final sale price.

At what age do you not pay capital gains? ›

Capital Gains Tax for People Over 65. For individuals over 65, capital gains tax applies at 0% for long-term gains on assets held over a year and 15% for short-term gains under a year. Despite age, the IRS determines tax based on asset sale profits, with no special breaks for those 65 and older.

Do capital gains get taxed twice? ›

The taxation of capital gains places a double tax on corporate income. Before shareholders face taxes, the business first faces the corporate income tax.

Are long term capital gains taxed at a higher rate than ordinary income? ›

Short-term capital gains are taxed at the same rate as your ordinary income. Meanwhile, long-term gains are taxed at either 0%, 15%, or 20%. The rate you pay is based on your taxable income. Just like with ordinary income tax rates, the higher your income, the higher your long-term capital gains tax rate.

Why are long term capital gains taxed lower? ›

By favoring present over future consumption, savings are discouraged, which decreases future available capital and lowers long term growth. Not only has a low capital gains tax rate worked to encourage savings and increase economic growth, a low capital gains rate has historically raised more in tax revenue.

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