Understanding how long-term capital gains taxes work is crucial for investment planning. This guide breaks down the 2024 tax brackets and provides practical examples to help you calculate your potential tax liability.
Long Term Capital Gain Tax Brackets for 2024
The long-term capital gains tax rates depend on your filing status and total taxable income. Here are the tax brackets for 2024:
| Tax Rate | Single | Married Filing Jointly | Married Filing Separately | Head of Household |
|---|---|---|---|---|
| 0% | $0 to $47,025 | $0 to $94,050 | $0 to $47,025 | $0 to $63,000 |
| 15% | $47,026 to $518,900 | $94,051 to $583,750 | $47,026 to $291,850 | $63,001 to $551,350 |
| 20% | $518,901 or more | $583,751 or more | $291,851 or more | $551,351 or more |
How the Calculation Works
Long-term capital gains are taxed in layers, similar to ordinary income tax brackets. The key difference is that your regular taxable income is considered first, and then capital gains are “stacked” on top of that income to determine which tax brackets apply.
Examples: Married Filing Jointly
Let’s walk through some examples assuming a married couple filing jointly to see how the calculation works in practice:
| Taxable Income | Long Term Capital Gain | 0% Tax Portion | 15% Tax Portion | 20% Tax Portion | Total Tax |
|---|---|---|---|---|---|
| $94,000 | $50 | $0 | $0 | $0 | $0 |
| $94,000 | $60 | $50 | $10 | $0 | $1.50 |
| $94,000 | $500,000 | $50 | $489,700 | $10,250 | $75,505 |
Example 1: $94,000 Income + $50 Capital Gain
- Total income: $94,050
- Since this is right at the 0% bracket limit ($94,050), all $50 of capital gains is taxed at 0%
- Total tax: $0
Example 2: $94,000 Income + $60 Capital Gain
- Total income: $94,060
- $50 falls within the 0% bracket (up to $94,050)
- $10 falls into the 15% bracket
- Tax calculation: $0 + ($10 × 15%) = $1.50
Example 3: $94,000 Income + $500,000 Capital Gain
- Total income: $594,000
- $50 falls within the 0% bracket (up to $94,050)
- $489,700 falls within the 15% bracket ($94,051 to $583,750)
- $10,250 falls within the 20% bracket ($583,751 and above)
- Tax calculation: $0 + ($489,700 × 15%) + ($10,250 × 20%) = $75,505
Key Takeaways
- Income stacking: Your regular taxable income fills up the lower tax brackets first
- Progressive rates: Capital gains are taxed at increasing rates as your total income rises
- Planning opportunity: If your income is low enough, you might qualify for the 0% capital gains rate
- Timing matters: Holding investments for more than one year qualifies them for these favorable long-term capital gains rates
Understanding these calculations can help you make more informed decisions about when to realize investment gains and how to optimize your overall tax strategy.