Long-Term vs. Short-Term Capital Gains (2024)

Tax Rates for Short-Term Capital Gains 2024
Filing Status10%12%22%24%32%35%37%
SingleUp to $11,600$11,600 to $47,150$47,151 to $100,525$100,526 to $191,950$191,951 to $243,725$243,726 to $609,350$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 $609,350$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 $731,200$731,200+
Married filing separatelyUp to $11,600$11,600 to $47,150 to $$47,151 to $100,525$100,526 to $191,950$191,951 to $243,725$243,726 to $365,600$365,600

Source: Internal Revenue Service

Ordinary income is taxed at rates that increase as your income increases. It’s possible that a short-term capital gain (or at least part of it) might be taxed at a higher rate than your regular earnings. That’s because it might cause part of your overall income to jump into a higher marginal tax bracket.

Let's use our above example of a $90,000 salary and $10,000 short-term capital gain. Given the 2023 federal income tax rates, and assuming you are filing as a single person, you would be in the 22% tax bracket. However, because of the progressive nature of the federal tax system, the first $11,000 that you earn would be taxed at 10%, your income from over $11,000 up to $44,725 would be taxed at 12%, and only the income from over $44,725 to $95,375 would be taxed at 22%.

Continuing with the example, the portion of your $10,000 short-term capital gain that can be allotted to the $95,375 limit for the bracket (given your $90,000 salary) is $5,375. That figure would be taxed at 22%. The remaining $4,625 of the gain, however, would be taxed at 24%, the rate for the next highest tax bracket.

Make sure you consult an accountant or other financial professional who can help guide you through the process if you have trouble understanding how capital gains affect your tax bracket and overall tax liability.

Capital Gains and State Taxes

Whether you also pay capital gains to the state depends on where you live. Some states also tax capital gains, while others have no capital gains taxes or favorable treatment of them. The following states have no income taxes and no capital gains taxes:

  • Alaska
  • Florida
  • Nevada
  • New Hampshire
  • South Dakota
  • Tennessee
  • Texas
  • Washington
  • Wyoming

Several states offer either a credit, deduction, or exclusion. For example, Colorado offers an exclusion on real or tangible property, and New Mexico offers a deduction on federally taxable gains. Montana has a credit to offset part of any capital gains tax. Washington state implemented a 7% tax on long-term net capital gains in excess of $250,000 beginning Jan. 1, 2022.

Investopedia's Tax Savings Guide can help you maximize your tax credits, deductions, and savings.

Which Assets Are Counted As Capital Gains?

Some assets receive different capital gains treatment or have different time frames than the rates indicated above.


You’re taxed at a 28% rate—regardless of your income—for gains on art, antiques, jewelry, precious metals, stamp collections, coins, and other collectibles.

Qualified Small Business Stock

The tax treatment of a qualified small business (QSB) stock dependson when the stock was acquired, by whom, and how long it was held. To qualify for this exemption, the stock must have been acquired from a QSB after Aug. 10, 1993, and the investor must be a noncorporate entity that held the stock for at least five years.

A QSB is generally defined as a domestic C corporation with aggregate gross assets that have never exceeded $50 million at any point since Aug. 10, 1993. Aggregate gross assets include the amount of cash held by the company, as well as the adjusted bases of all other property owned by the corporation. Additionally, the QSB must file all required reports.

Only certain types of companies fall under the category of a QSB. Firms in the technology, retail, wholesale, and manufacturingsectorsare eligible as QSBs, while those in the hospitality industry, personal services,financial sector, farming, and mining are not.

This exemption originally allowed the taxpayer to exclude 50% of any gain from the sale of QSB stock. However, it was later increased to 75% for QSB stock acquired from Feb. 18, 2009, to Sept. 27, 2010, and then to 100% for QSB stock acquired after Sept. 27, 2010. The gain that is eligible for this treatment has a cap of $10 million, or 10 times theadjusted basisof the stock—whichever is greater.

Home Sale Exclusion

There’s a special capital gains arrangement if you sell your principal residence. The first $250,000 of an individual’s capital gains on the sale of your principal residence is excluded from taxable income ($500,000 for those married filing jointly), as long as the seller has owned and lived in the home for two of the five years leading up to the sale. If you sold your home for less than you paid for it, this loss is not considered tax deductible, because capital losses from the sale of personal property, including your home, are not tax deductible.

For example, a single taxpayer who purchased a house for $300,000 and sold it for $700,000 made a $400,000 profit on the sale. After they apply the $250,000 exemption, they must report a capital gain of $150,000. This is the amount subject to the capital gains tax.

In most cases, significant repairs and improvements can be added to the base cost of the house. These can serve to further reduce the amount of taxable capital gain. If you spent $50,000 to add a new kitchen to your home, this amount could then be added to the $300,000 original purchase price. This would raise the total base cost for capital gains calculations to $350,000 and lower the taxable capital gain from $150,000 to $100,000.

Investment Real Estate

Investors who own real estate are often allowed to apply deductions to their total taxable income based on the depreciation of their real estate investments. This deduction is meant to reflect the steady deterioration of the property as it ages, and it essentially reduces the amount that you’re considered to have paid for the property in the first place. This also has the effect of increasing your taxable capital gain when the property is sold.

For example, if you paid $200,000 for a building and are allowed to claim $5,000 in depreciation, then you’ll be treated subsequently as if you had paid $195,000 for the building. If you then sell the real estate, the $5,000 is treated asrecapturing those depreciation deductions. The tax rate that applies to the recaptured amount is 25%.

So if you sold the building for $210,000, there would be total capital gains of $15,000. But $5,000 of that figure would be treated as a recapture of the deduction from income. That recaptured amount is taxed as ordinary income but is capped at the maximum rate of 25%. The remaining $10,000 of capital gain would be taxed at one of the 0%, 15%, or 20% rates indicated above.

Investment Exceptions

High-income earners may be subject to another tax on their capital gains: the net investment income tax. This tax imposes an additional 3.8% on your investment income, including your capital gains if your modified adjusted gross income (MAGI) exceeds certain maximums: $250,000 if married and filing jointly or you’re a surviving spouse, $200,000 if you’re single or a head of household, and $125,000 if married and filing separately.

Advantages of Long-Term Capital Gains

It can be advantageous to keep investments longer if they will be subject to a capital gains tax once they’re realized.

The tax rate will be lower for most people if they realize a capital gain after one year. For example, suppose you bought 100 shares of XYZ Corp. stock at $20 per share and sold them at $50 per share. Your regular income from earnings is $100,000 a year, and you file taxes jointly with your spouse. The chart below compares the taxes that you would pay when you sold the stock after more than a year vs. after less than a year.

How Patience Can Pay off in Lower Taxes
Transactions and consequencesLong-term capital gainShort-term capital gain
Bought 100 shares at $20$2,000$2,000
Sold 100 shares at $50$5,000$5,000
Capital gain$3,000$3,000
Capital gainstax$450 (taxed at 15%)$660(taxed at 22%)
Profit after tax$2,550$2,340

*This chart shows how a married couple filing jointly earning $100,000 a year could avoid more than $200 in taxes by waiting over one year before selling shares that had appreciated $3,000.

You would pay $450 of your profits by opting for a long-term investment gain and being taxed at the long-term capital gains rate. But had you held the stock for one year or less (and hence incurred a short-term capital gain), your profit would have been taxed at yourordinary incometax rate. For our $100,000-a-year couple, that would trigger a tax rate of 22%, the applicable rate for income over $89,450 in 2023. That adds an additional $210 to the capital gains tax bill, for a total of $660.

While it’s possible to make a higher return by cashing in your investments frequently and repeatedly shifting the funds to fresh new investment opportunities, that higher return may not compensate for higher short-term capital gains tax bills. Making constant changes in investment holdings, resulting in high payments of capital gains tax and commissions, is called churning when it's done by a broker.

Do Long-Term Capital Gains Rates Ever Change?

Both long-term capital gains rates and short-term capital gains rates are subject to change, depending on prevailing tax legislation. Most often, the rates will change every year in consideration and relation to tax brackets; individuals who have earned the same amount from one year to the next may notice that, because of changes to the cost of living and wage rates, their capital gains rate has changed. It is also possible for legislation to be introduced that outright changes the bracket ranges or specific tax rates.

How Do I Calculate Capital Gain on the Sale of Property?

You must first determine your basis in the property. Your basis is your original purchase price plus any fees that you paid minus any depreciation taken. Next, determine your realized amount. Your realized amount is the price that you’re selling the property for minus any fees paid by you. Finally, you need to subtract your basis from your realized amount. If the figure is positive, then you will have a capital gain. If the figure is negative, then you will have a capital loss.

Will My Long-Term Capital Gains Push Me Into a Higher Ordinary Income Tax Bracket?

Your long-term capital gains will not cause your ordinary income to be taxed at a higher rate. Ordinary income is calculated separately and taxed at ordinary income rates. More long-term capital gains may push your long-term capital gains into a higher tax bracket (0%, 15%, or 20%), but they will not affect your ordinary income tax bracket.

However, if you had short-term capital gains, then they would increase your ordinary income and potentially push you into the next marginal ordinary income tax bracket.

The Bottom Line

The tax on a long-term capital gain is almost always lower than if the same asset were sold in a year or less. Most taxpayers don’t have to pay the highest long-term rate. Tax policy encourages you to hold assets subject to capital gains for more than a year.

Long-Term vs. Short-Term Capital Gains (2024)


Are long term capital gains better than short-term? ›

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.

How do you determine if a capital gain is long term or short-term? ›

Generally, if you hold the asset for more than one year before you dispose of it, your capital gain or loss is long-term. If you hold it one year or less, your capital gain or loss is short-term.

What is the difference between short-term and long-term capital and how will it help you meet the business costs? ›

Essentially, the type of capital companies select will depend on the needs of their business. Long-term capital is better-suited for external and internal strategic investments as well as financial risk management, in contrast to short-term capital, which is best used for every-day, operational needs.

How do you calculate long term and short-term capital gains? ›

When computing Long Term Capital Gains, the Cost Inflation Index should be used to index the Cost of Acquisition and Cost of Improvement.
  1. Indexed Cost = Actual Cost x Cost Inflation Index in the year of sale / Cost Inflation Index in the year of purchase. ...
  2. Example: Ms.

What is the 6 year rule for capital gains tax? ›

Here's how it works: Taxpayers can claim a full capital gains tax exemption for their principal place of residence (PPOR). They also can claim this exemption for up to six years if they move out of their PPOR and then rent it out. There are some qualifying conditions for leaving your principal place of residence.

How to avoid short-term capital gains tax? ›

9 Ways to Avoid Capital Gains Taxes on Stocks
  1. Invest for the Long Term. ...
  2. Contribute to Your Retirement Accounts. ...
  3. Pick Your Cost Basis. ...
  4. Lower Your Tax Bracket. ...
  5. Harvest Losses to Offset Gains. ...
  6. Move to a Tax-Friendly State. ...
  7. Donate Stock to Charity. ...
  8. Invest in an Opportunity Zone.
Mar 6, 2024

How to avoid capital gains tax over 65? ›

Utilize Tax-Advantaged Accounts: Tax-advantaged retirement accounts, such as 401(k)s, Charitable Remainder Trusts, or IRAs, can help seniors reduce their capital gains taxes. Money invested in these accounts grows tax-free, and withdrawals are not taxed until they are taken out in retirement.

What is the rule for long term capital gain? ›

Long-Term Capital Gains (LTCG) on shares and equity-oriented mutual funds in India are taxed at a 10% rate (plus surcharge and cess) if they reach Rs. 1 lakh in a fiscal year. LTCG is defined as profits on the sale of shares or equity-oriented mutual funds held for more than a year.

How to figure out 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.

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.

How much short-term capital gain is tax free? ›

The exemption limit is Rs. 2,50,000 for resident individual of the age below 60 years whereas the exemption limit is Rs. 3,00,000 for resident individual of the age of 60 years or above but below 80 years.

What is the exemption for long term capital gains tax? ›

Exemptions on Long-Term Capital Gains Tax

Capital gains up to Rs 1 lakh per year are exempted from capital gains tax. Long-term capital gain tax rate on equity investments/shares will continue to be charged at 10% on the gains.

What is considered long-term vs short term capital gains? ›

Short-term capital gains tax is a tax applied to profits from selling an asset you've held for less than a year. 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.

What is an example of a short term capital gain? ›

Example: Miss Rita purchased the building for Rs 10 lakh and sold it a year later for Rs 15 lakh, a profit/gain of Rs 5 lakh. In this case her short term capital gain is Rs 5 lakh.

How do you explain capital gains tax? ›

Capital gain taxes are taxes imposed on the profit of the sale of an asset. The capital gains tax rate will vary by taxpayer based on the holding period of the asset, the taxpayer's income level, and the nature of the asset that was sold.

Is it better to sell long-term or short-term stock? ›

When selling stocks or other assets in your taxable investment accounts, remember to consider potential tax liabilities. With tax rates on long-term gains likely being more favorable than short-term gains, monitoring how long you've held a position in an asset could be beneficial to lowering your tax bill.

Is it better to have a short-term or long-term capital loss? ›

When you're looking for tax losses, focusing on short-term losses provides the greatest benefit because they are first used to offset short-term gains—and short-term gains are taxed at a higher marginal rate. According to the tax code, short- and long-term losses must be used first to offset gains of the same type.

Which is more profitable short-term or long-term? ›

There are several risks that are involved with investments which is why the stock market has a 50:50 success rate. It is for this reason, that short-term equity investments are considered as risky, whereas long-term investments are considered much more profitable and consistent in terms of returns.

What is the benefit of getting taxed at the long-term capital gains rate? ›

Long-term capital gains are typically taxed at lower rates, meaning there may be a benefit to holding onto your assets for longer before you sell them. 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%.

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