Understanding capital gains tax can be a bit tricky, especially when different rules apply based on how long you’ve held an asset.
If you sell stocks, mutual funds, or other capital assets after holding them for more than a year, the long-term capital gains tax rate will be 0%, 15%, or 20%, depending on your taxable income.
But what if you sold them in less than a year? Then you’re looking at short-term capital gains rates, which can be different.
Also, the type of property you sell matters and could affect the rate. Did you know some folks even have to pay an extra surtax on top of their capital gains tax? It’s important not to spend all your profits right away. Instead, set aside money for taxes.
In today’s blog, we’ll dive into what the capital gains tax rates are for 2024 compared to 2023 and whether you might owe a surtax.
Read on to get all the details.
What Are the Capital Gains Tax Rates for 2024 vs. 2023?
Let’s talk about the tax rates for long-term capital gains. These lower rates are designed to encourage us to hold onto investments for over a year. Depending on your taxable income, you could be looking at rates of 0%, 15%, or 20%. If your income is on the lower end, you might even qualify for the 0% rate, which is a nice perk.
Now, if you have a higher income, you’ll likely pay the 20% rate on your long-term capital gains. But keep in mind, even this higher rate is often less than what you’d pay on other income like wages or short-term capital gains.
So, how do you know what your tax rate will be? It all depends on your taxable income. Here are the long-term capital gains taxable income thresholds for the 2023 tax year:
| Capital Gains Tax Rate | Taxable Income (Single) | Taxable Income (Married Filing Separately) | Taxable Income (Head of Household) | Taxable Income (Married Filing Jointly) |
| 0% | Up to $47,025 | Up to $47,025 | Up to $63,000 | Up to $94,050 |
| 15% | $47,026 to $518,900 | $47,026 to $291,850 | $63,001 to $551,350 | $94,051 to $583,750 |
| 20% | Over $518,900 | Over $291,850 | Over $551,350 | Over $583,750 |
The income thresholds for long-term capital gains tax rates are adjusted each year to keep up with inflation. This adjustment is beneficial for taxpayers, especially those with stagnant or slow-growing incomes. Without this adjustment, many people would end up paying a higher tax rate in 2024 than they did last year due to inflation.
To understand the changes from 2023 to 2024, let’s first look at the figures for the 2023 tax year.
2023 Long-Term Capital Gains Tax Rate Income Thresholds
| Capital Gains Tax Rate | Taxable Income (Single) | Taxable Income (Married Filing Separate) | Taxable Income (Head of Household) | Taxable Income (Married Filing Jointly) |
| 0% | Up to $44,625 | Up to $44,625 | Up to $59,750 | Up to $89,250 |
| 15% | $44,626 to $492,300 | $44,626 to $276,900 | $59,751 to $523,050 | $89,251 to $553,850 |
| 20% | Over $492,300 | Over $276,900 | Over $523,050 | Over $553,850 |
These thresholds show the range of incomes that fall under each tax rate. By adjusting these thresholds annually for inflation, the tax system helps prevent taxpayers from being pushed into higher tax brackets simply because of rising prices. This adjustment ensures that people with consistent or slower-growing incomes don’t face higher taxes unfairly.
Short-Term Capital Gains Tax Rates for 2024 vs. 2023
When it comes to short-term capital gains, the tax rate you pay is the same as your regular income tax rate. This means if you sell an asset that you’ve held for a year or less, you’ll pay the same tax rate as you would on your wages or other income. In 2024, these rates range from 10% to 37%, depending on your taxable income.
These income thresholds adjust annually for inflation, so it’s important to check the current federal income tax brackets and rates for 2024 to see where you fall.
Typically, the rate for long-term capital gains, which are gains from assets held for more than a year, is lower than for short-term gains. This means you can often save on taxes by holding onto assets like stocks, bonds, and real estate for over a year before selling them.
Capital Gains Tax Rates for Collectibles in 2024 vs. 2023
When it comes to capital gains tax rates, there are some exceptions to the general rules. One of the most common exceptions involves gains from selling collectibles that qualify as capital assets.
A “collectible” can be many things, such as a work of art, antiques, stamps, coins, bottles of wine or other alcoholic beverages, gold, precious metals, gems, historic objects, or similar items. If you sell an interest in a partnership, S corporation, or trust, any gain from that sale that’s due to the appreciation in the value of collectibles is also treated as gain from the sale of collectibles.
Unlike the typical maximum tax rate of 20% for long-term gains, gains from selling collectibles can be taxed at a rate as high as 28%. However, if your ordinary tax rate is lower than 28%, then your lower rate will apply. But if you fall into a higher tax bracket (like 32%, 35%, or 37%), your collectible gains are capped at a 28% capital gains tax.
It’s important to note that the 28% cap only applies to long-term capital gains. If you sell a collectible within one year of owning it, any gain will be taxed at your ordinary tax rate, which can range from 10% to 37%.
Capital Gains Tax Rates for Qualified Small Business Stock and Depreciated Real Estate in 2024
If you’re selling Qualified Small Business Stock (QSBS) that you’ve held for at least five years, you might be in for a pleasant surprise: some or even all of your gain could be tax-free! This is a significant benefit designed to encourage long-term investments in small businesses. However, if you do end up with a taxable gain, the maximum capital gains tax rate you’ll face is 28%. But don’t worry, if your ordinary tax rate is lower than 28%, you’ll pay based on your ordinary rate instead. It’s also worth noting that this 28% rate doesn’t apply to short-term gains from selling QSBS.
When it comes to previously deducted depreciation, the rules are a bit different. If you’ve sold real estate that you’ve claimed depreciation on, you might need to pay up to 25% on what’s known as “unrecaptured Section 1250 gain.” This applies to the portion of your gain from selling certain depreciable property. For most people, this situation arises with rental properties. Again, if your ordinary income tax rate is lower, that lower rate will apply instead. And remember, this 25% rate doesn’t impact short-term gains.
For both QSBS and depreciated real estate, understanding these rates is crucial to managing your tax responsibilities effectively.
Understanding the 3.8% Net Investment Income Tax in 2024
If you’re investing and earning income from things like interest, dividends, or rental properties, you might encounter an additional 3.8% surtax on top of your regular capital gains tax.
This extra tax is known as the Net Investment Income Tax (NIIT). It applies to your net investment income (NII), which includes taxable interest, dividends, capital gains, passive rental income, annuities, and royalties.
Whether or not you owe this tax depends on your income level. For 2024, if you’re a single filer or head of household and your modified adjusted gross income (AGI) exceeds $200,000, or if you’re married filing jointly with an AGI over $250,000, you’ll need to pay this surtax. For those married but filing separately, the threshold is $125,000.
To figure out how much you owe, you’ll need to fill out Form 8960. This form helps calculate the amount of NIIT you might have to pay based on your investment income and overall income. Make sure to keep this in mind as you plan your taxes for the year.
Final Thoughts
To sum it up, understanding the nuances of capital gains tax rates for 2024 versus 2023 is crucial for effective financial planning. With adjustments for inflation impacting long-term gains and the potential for higher rates on collectibles and certain investments, it’s essential to stay informed about the thresholds and rules.
Additionally, be aware of the Net Investment Income Tax if your income surpasses specific levels. By keeping these details in mind, you can better navigate your tax obligations and potentially maximize your tax savings.
Always consider consulting with a tax professional to tailor strategies to your unique financial situation.
Frequently Asked Questions
Ques. What are the capital gains tax rates for 2024?
Ans. The capital gains tax rates for 2024 are:
- Long-term capital gains: 0%, 15%, or 20%, based on your taxable income.
- Short-term capital gains: Taxed at the same rate as your ordinary income tax rates, which range from 10% to 37%.
- Collectibles: Gains are taxed up to 28%.
- Qualified Small Business Stock: Gains may be partially or fully tax-free, or taxed at a maximum rate of 28%.
- Depreciated real estate: Up to 25% on unrecaptured Section 1250 gain.
Ques. How do long-term capital gains tax rates in 2024 compare to 2023?
Ans. For 2024, long-term capital gains tax rates have been adjusted for inflation.
The 0% rate applies to income up to:
- $47,025 (single)
- $47,025 (married filing separately)
- $63,000 (head of household)
- $94,050 (married filing jointly)
For 2023, the thresholds were:
- $44,625 (single)
- $44,625 (married filing separately)
- $59,750 (head of household)
- $89,250 (married filing jointly)
The thresholds for the 15% and 20% rates have also been adjusted upward.
Ques. What is the 3.8% Net Investment Income Tax for 2024?
Ans. The 3.8% Net Investment Income Tax (NIIT) applies to individuals with a modified adjusted gross income (AGI) exceeding:
- $200,000 (single or head of household)
- $250,000 (married filing jointly)
- $125,000 (married filing separately)
This tax is applied to net investment income, including interest, dividends, and capital gains.
Ques. Are there any changes to short-term capital gains tax rates in 2024?
Ans. Short-term capital gains tax rates for 2024 are the same as your ordinary income tax rates, ranging from 10% to 37%. These rates are subject to the same annual adjustments for inflation as other income tax rates.
Ques. What is the tax rate for collectibles in 2024?
Ans. Gains from selling collectibles are taxed at a maximum rate of 28%. This applies to items such as art, antiques, coins, and other collectible goods. If your ordinary tax rate is lower than 28%, you’ll pay based on that lower rate.
Ques. How does the Qualified Small Business Stock (QSBS) tax rate change for 2024?
Ans. For QSBS held for at least five years, some or all of the gain might be tax-free. If there is a taxable gain, the maximum capital gains tax rate is 28%. This rate applies only to long-term gains; short-term gains are taxed at ordinary income rates.
Ques. What is the maximum capital gains tax rate for real estate with depreciation in 2024?
Ans. Gains from selling depreciated real estate (such as rental property) can be taxed up to 25% on “unrecaptured Section 1250 gain.” This applies to the portion of the gain attributable to depreciation claimed on the property.
Ques. How are capital gains from stocks taxed in 2024?
Ans. Gains from stocks held for more than a year are taxed at long-term capital gains rates (0%, 15%, or 20%), depending on your taxable income. Gains from stocks held for less than a year are taxed at short-term capital gains rates, which match ordinary income tax rates (10% to 37%).
Ques. What are the capital gains tax rates for bonds in 2024?
Ans. Gains from bonds are taxed similarly to stocks. Long-term capital gains (for bonds held over a year) are taxed at 0%, 15%, or 20%, depending on your taxable income. Short-term gains (for bonds held for less than a year) are taxed at ordinary income rates.
Ques. Do capital gains tax rates affect retirement accounts in 2024?
Ans. Generally, capital gains within tax-advantaged retirement accounts like IRAs and 401(k)s are not subject to capital gains tax at the time of transaction. Instead, you pay tax on withdrawals according to the account type and your tax bracket at the time of withdrawal.
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