Capital gains taxes are levied on the profits realized from selling appreciated assets such as stocks, bonds, or real estate. The rates applied to these gains depend on when the asset was held and your overall income level. Learn more about capital gains tax rate USA and how you can calculate.
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What are Capital Gains Taxes?
Capital gains represent the profits realized when an asset, such as stocks, bonds, or real estate, is sold for a higher price than its original purchase cost. These gains are generally considered taxable income and are subject to capital gains taxes.
In the U.S., capital gains tax only applies to profits from the sale of assets held for more than a year, known as long-term capital gains. The current capital gains tax rate is 0%, 15%, or 20%, depending on your income bracket. This encourages investors to hold onto their investments longer to benefit from lower tax rates!
State Taxes: Many states also impose their own capital gains taxes. The rates vary significantly by state, and taxpayers may be subject to federal and state capital gains taxes.
Qualified Small Business Stock (QSBS): Certain taxpayers may qualify for a preferential tax rate of 0% on the sale of qualified small business stock held for more than five years.
Capital Gains Tax Rate USA: Short-Term vs. Long-Term
The tax rate applied to capital gains depends significantly on the asset’s holding period.
Short-Term Capital Gains:
When you sell an asset you’ve owned for a year or less and make a profit, you’ve got yourself a short-term capital gain. But here’s the catch: these gains are taxed like your regular income. Additionally, short-term capital gain is taxed as ordinary income. So, depending on your income bracket, you could pay anywhere from 10% to 37% in taxes.
2024
Short Term Capital Gains Tax
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Long Term Capital Gains
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Long Term Capital Gains
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Long-Term Capital Gains:
When you sell an asset you’ve held for more than a year, you enjoy the perks of the tax rate on long term capital gains, which are much lower than ordinary income tax rates. Here’s the scoop:
- 0%: If you’re in the 10%- or 12%-income tax brackets, you won’t owe any federal capital gains taxes on your long-term gains. That’s right, zero!
- 15%: Most people will fall into this category and pay a 15% tax on their long-term capital gains.
- 20%: High rollers in the 35%- or 37%-income tax brackets will face a 20% tax on their long-term gains.
Why It Matters
Long-term capital gains are taxed at these lower rates to encourage you to hold onto your investments longer. This can save you a bundle compared to the higher rates for short-term gains.
How to Calculate Your Holding Period
You must know your holding period to determine if your gain qualifies as long-term. Here’s a fun way to remember it:
- The day after you buy the asset is Day 1 of your holding period.
- If you bought an asset on February 1, 2023, your holding period starts on February 2, 2023.
- The one-year mark is February 1, 2024. You’ve hit the long-term mark if you sell on or after this date!
How Do Capital Gain Taxes Work?
We need to understand capital losses to understand how the capital gain taxes work; then, we can proceed to the capital gain tax calculations.
What Are Capital Losses?
Capital losses happen when you sell an asset or investment for less than what you paid. But don’t worry; these losses can help you at tax time by offsetting your capital gains.
Just like gains, capital losses come in the short and long term. Here’s how they work:
- Match the Type: First, use your long-term capital losses to offset any long-term capital gains. The same goes for short-term losses and gains.
- Offset the Excess: If you have more losses than gains, you can use the extra losses to offset the other type of gain. For example, leftover long-term losses can offset short-term gains.
- Reduce Other Income: You can also use up to $3,000 of your capital losses to reduce other types of income, like earnings or dividends.
- Carry Forward: If you still have unused losses, you can carry them to future tax years to offset gains.
Fun Fact: You can use capital losses to offset up to $3,000 of your other yearly income! Plus, any leftover losses can be carried forward indefinitely, helping you reduce your tax bill in future years.
Calculating Your Capital Gains
Capital losses can be deducted from capital gains to determine your taxable gains for the year. However, the calculation can get tricky if you have both short-term and long-term investments with gains and losses.
First, separate your short-term gains and losses from your long-term gains and losses. Calculate the total short-term gains and then the total short-term losses. Do the same for your long-term gains and losses.
Next, net the short-term gains against the short-term losses to get a net short-term gain or loss. Repeat this process for your long-term gains and losses to get a net long-term gain or loss.

You can also use a capital gains calculator to estimate what you might owe on a potential or actualized sale.
Special Capital Gains Tax Exceptions
Not all assets are taxed the same way regarding capital gains. Here’s a breakdown of some cases:
Collectibles:
Short-term gains on collectibles like art, antiques, jewelry, precious metals, or stamps are taxed as ordinary income at your regular tax rate. However, if you hold onto these items for over a year, the gains are still taxed as ordinary income but capped at 28%.
Owner-Occupied Real Estate:
When you sell your main home, you can exclude up to $250,000 of the gain from your taxable income (or $500,000 if married filing jointly). This applies if you’ve owned and lived in the home for at least two years. Unlike other investments, you can’t deduct losses from selling personal property like your home.
For example, if you bought a house for $200,000 and sold it for $500,000, you made a $300,000 profit. After the $250,000 exemption, you only report a $50,000 gain for tax purposes. Significant repairs and improvements can also be added to your home’s cost, reducing your taxable gain.
Investment Real Estate:
Investors can deduct depreciation to account for the property’s wear and tear over time. This reduces the property’s cost basis, which can increase your taxable gain when you sell.

For instance, if you bought a building for $100,000 and claimed $5,000 in depreciation, your adjusted cost basis is $95,000. If you sell the building for $110,000, you have a $15,000 gain. The $5,000 depreciation is recaptured and taxed at 25%, while the remaining $10,000 is taxed at 0%, 15%, or 20%, depending on your income.
Investment Exceptions:
High-income earners may face an additional 3.8% tax on investment income, including capital gains, if their modified adjusted gross income (MAGI) exceeds certain thresholds. These thresholds are $250,000 for married couples filing jointly or surviving spouses, $200,000 for single filers or heads of household, and $125,000 for married individuals filing separately.
Fun Fact: Selling your primary residence can give you a huge tax break! You can exclude up to $250,000 (or $500,000 for married couples) of the gain from your taxable income if you’ve lived in the home for at least two years.
How to Avoid Capital Gains Taxes
Investing money and making a profit is exciting, but you’ll also owe capital gains taxes. Luckily, there are several perfectly legal ways to minimize your capital gains taxes. Here’s how:
1. Hold Your Investments for Over a Year
If you hold your investment for over a year, your profits are taxed at the lower long-term capital gains rate. Otherwise, they’re treated as regular income, which usually means a higher tax rate. So, patience pays off!
2. Use Investment Losses to Your Advantage
Did you know you can deduct your investment losses from your profits? You can claim up to $3,000 of excess losses yearly to lower your taxable income. Some savvy investors sell losing investments at the end of the year to offset their gains. If your losses exceed $3,000, you can carry them to future years to offset future gains.
3. Track Your Investment Expenses
Record any qualifying expenses related to making or maintaining your investments. These expenses increase your cost basis, which reduces your taxable profit when you sell.
4. Utilize Tax-Advantaged Accounts
Consider holding your investments in tax-advantaged accounts like a 401(k) or IRA. While these accounts may limit your liquidity and withdrawal options, they allow you to buy and sell securities without incurring taxes on gains, which can be a significant advantage.
5. Seek Out Exclusions
If you sell your primary residence, you can exclude up to $250,000 of the gain from your taxable income ($500,000 for married couples filing jointly). Ensure you’ve lived in the home for at least two years to qualify. Planning the timing of your sale to meet these criteria can save you a substantial amount in taxes.
Capital Gains Tax Strategies
Investing money and making a profit is exciting, but you’ll also owe capital gains taxes. Luckily, there are several perfectly legal ways to minimize your capital gains taxes. Here’s how:
Use Your Capital Losses
Capital losses can offset capital gains and effectively lower your capital gains tax for the year. But what if your losses are more significant than your gains? If losses exceed gains by up to $3,000, you can claim that amount against your income. Any excess loss not used in the current year can be deducted from income to reduce your tax liability in future years.
For example, if you realize a profit of $5,000 from selling some stocks but incur a loss of $20,000 from selling others, the capital loss can cancel out the tax liability for the $5,000 gain. The remaining $15,000 loss can offset income, reducing the tax on those earnings. If your annual income is $50,000, you can report $47,000 in taxable income by claiming the $3,000 maximum loss. The remaining $12,000 loss can be deducted over the next four years.
Don’t Break the Wash-Sale Rule
Be careful not to sell stock shares at a loss to get a tax advantage and repurchase the same investment within 30 days. This violates the IRS wash-sale rule. Capital losses can be rolled forward to subsequent years to reduce future income and lower your tax burden.
Use Tax-Advantaged Retirement Plans
Participating in a retirement plan like a 401(k) or IRA allows your investments to grow without being subject to capital gains tax. You can buy and sell within these plans without paying taxes every year.
Most traditional retirement plans do not require participants to pay tax on the funds until they are withdrawn; at this point, withdrawals are taxed as ordinary income. With a Roth IRA or 401(k), qualified retirement withdrawals are tax-free since income taxes are collected as the money is paid into the account.
Cash In After Retiring
As you approach retirement, consider waiting until you stop working to sell profitable assets. If your retirement income is lower, the capital gains tax bill might be reduced. You may even avoid paying capital gains tax altogether. Be mindful of the impact of taking the tax hit while working versus after retirement.
Watch Your Holding Periods
An asset must be sold more than a year to the day after it was purchased to qualify for long-term capital gains treatment. If you are selling a security bought about a year ago, check the actual trade date of the purchase before selling. Waiting a few extra days might qualify for the sale for long-term capital gains treatment.
Pick Your Basis
Most investors use the first-in, first-out (FIFO) method to calculate the cost basis when acquiring and selling shares in the same company or mutual fund at different times. However, there are other methods to choose from: last in, first out (LIFO), dollar value LIFO, average cost (only for mutual fund shares), and specific share identification. The best choice depends on factors like the basis price of shares purchased and the amount of gain declared.
Frequently Asked Questions
The Net Investment Income Tax (NIIT) is a 3.8% tax on certain net investment income for individuals, estates, and trusts with income above statutory threshold amounts.
You typically pay capital gains tax after selling an asset, but the IRS may require quarterly estimated payments to avoid penalties for large unpaid amounts.
Proponents of a low capital gains tax rate argue that it incentivizes investment, fuels economic growth, and avoids double taxation on already-taxed income.
Consult a Tax Professional
It’s smart to consult a qualified tax advisor, Legend Fusions, to make sure you’re getting the most out of your USA’s capital gain taxes and staying compliant with all regulations. With Legend Fusions, you do not only manage your capital gains tax rates USA but also unlock potential savings and avoid costly mistakes. Don’t miss out on maximizing your financial potential—get expert advice today!
Reviewed by:

Hira Asif
Hira Asif, Client Manager (US) at Legend Fusions, brings over 11 years of tax expertise, including 8 years with Ernst & Young. Her work focuses on tax advisory, compliance, and planning for individuals, partnerships, and private equity funds. With a deep knowledge of federal, state, and local tax regulations, Hira is skilled in identifying tax planning opportunities and reviewing corporate and partnership tax returns to optimize compliance and reduce exposures.