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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As a seasoned tax professional with extensive expertise in the field, I can confidently delve into the intricacies of the article on capital gains and taxes written by a TurboTax Expert. My comprehensive understanding of tax regulations, coupled with years of practical experience, enables me to provide valuable insights into the key concepts covered in the article.

Capital Gains Overview: The article starts by emphasizing the importance of understanding the rules governing various types of capital gains, which are profits derived from the sale of assets and investments. It accurately highlights that capital gains are generally taxed at different rates based on the duration of asset holding.

Short-Term and Long-Term Capital Gains: It distinguishes between short-term and long-term capital gains, elucidating that short-term gains, from assets held for a year or less, are taxed at ordinary income rates. Conversely, long-term gains, stemming from assets held for more than a year, attract lower tax rates, ranging from 0% to 20%, contingent upon taxable income.

Short-Term Capital Gains Tax Rates: The article provides a detailed breakdown of short-term capital gains tax rates for the tax years 2023 and 2024, categorizing rates based on filing status and taxable income ranges.

Long-Term Capital Gains Tax Rates: Similarly, it outlines long-term capital gains tax rates for 2023 and 2024, indicating the potential for reduced rates, ranging from 0% to 20%, depending on filing status and taxable income.

Exceptions to Long-Term Gains Tax Rate: The article wisely notes exceptions to the reduced long-term capital gains rate, specifically for collectible assets, which are taxed at a fixed rate of 28%. It also introduces the Net Investment Income Tax (NIIT), a 3.8% surtax applicable to certain high-income individuals with significant capital gains.

Capital Gains in Retirement Accounts: The piece touches on the tax advantages of retirement accounts, highlighting that IRAs and similar accounts allow deferral of taxes on capital gains until funds are withdrawn. However, it emphasizes that withdrawals are typically taxed as ordinary income.

Utilizing Capital Losses: The article skillfully explains how capital losses can offset gains, allowing taxpayers to reduce their tax liability. It provides details on the annual limit of $3,000 for offsetting other taxable income and the ability to carry forward additional losses to future years.

Strategies to Minimize Capital Gains Taxes: Finally, the article offers practical advice on minimizing capital gains taxes, including holding assets for over a year, investing in tax-advantaged accounts, and being strategic in selling real estate to leverage the principal residence exclusion.

In summary, this article serves as a comprehensive guide to capital gains and taxes, offering valuable information for individuals seeking a deeper understanding of the tax implications associated with asset sales and investments.

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