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If you're thinking of investing or selling a stock, it's important to familiarize yourself with the term "capital gains tax" before you begin.
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Long-term vs. short-term capital gains tax
2023 capital gains tax rates
2024 capital gains tax rates
Capital gains tax calculator
How to avoid capital gains tax
What are capital gains?
The IRS refers to most items someone owns as "capital assets." This includes 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. The money you lose is a capital loss.
» Selling a home? Taxes on the sale of a home can work differently.
How are capital gains calculated?
The difference between your capital gains and your capital losses is called your “net capital gain,” and that sum is what gets taxed by the IRS. For example, if you sold a stock for a $10,000 profit this year and sold another at a $4,000 loss, you’ll be taxed on capital gains of $6,000.
If your losses happen to exceed your gains, you can deduct the difference from your ordinary income on your tax return, up to $3,000 per year ($1,500 for those married filing separately).
What are capital gains taxes?
Capital gains taxes are taxes on the profit from the sale of your 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.
» Having trouble deciding whether to sell? A qualified financial advisor can help you understand your options.
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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%.
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.
The capital gains tax rates above apply to most assets, but there are some noteworthy exceptions. Long-term capital gains on so-called “collectible assets” can be taxed at a maximum of 28%. This includes items such as coins, precious metals, antiques and fine art. Short-term gains on such assets are taxed at the ordinary income tax rate.
» Ready to crunch the numbers? Our capital gains tax calculator can help you estimate your gains.
Long-term capital gains tax vs. short-term capital gains tax
How long you owned a stock or another capital asset can have a big impact on the type of taxes you pay. Long-term capital gains tax rates are generally lower and more favorable than short-term rates. The IRS says most people pay no more than 15% on their long-term capital gains.
Long-term capital gains tax rates
A 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.
Short-term capital gains tax rates
A 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 ordinary income tax brackets: 10%, 12%, 22%, 24%, 32%, 35% or 37%.
» Looking for ways to defer capital gains taxes? Putting money in an IRA or a 401(k) could help
Capital gains tax rates 2023 and 2024
The rates below apply to assets sold for a profit in 2023 and 2024. Long-term capital gains tax rates run from 0% to 20%, while short-term capital gains are taxed according to ordinary federal tax rates. Capital gains are reported on Schedule D of Form 1040.
Capital gains tax rate 2023
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 rate 2024
Fling 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. | |||
» Dive deeper: See the 2023-2024 income tax brackets
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Capital gains tax calculator
Use this capital gains calculator to estimate your taxes on assets sold in 2023 (taxes filed in 2024).
» MORE: Estimate your refund or bill with NerdWallet's tax calculator
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. Qualified distributions from those are tax-free; in other words, you don’t pay any taxes on investment earnings. With traditional IRAs and 401(k)s, you’ll pay taxes when you take distributions from the accounts in retirement.
» Learn more: We break down taxes on your retirement accounts.
Simple tax filing with a $50 flat fee for every scenario
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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 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
