How to Calculate Capital Gains Taxes

If you made money from investments, Uncle Sam might want a cut

a tree stump with dollar bills inside of it

Rob Dobi

Cameron Huddleston,

Updated February 25, 2025

AARP

En español

Published February 02, 2022

/ Updated February 25, 2025

Whether you invested in stocks, real estate, precious metals or even cryptocurrency, 2024 was likely a good year for you.

The S&P 500 stock index rose more than 23 percent, and the Nasdaq Composite Index, which is largely made up of technology companies, surged nearly 29 percent. Gold prices climbed more than 25 percent to hit record highs. The median sales price of homes also broke records, reaching $407,500. Bitcoin investors did particularly well — the price of the popular cryptocurrency soared nearly 125 percent last year.

But if you cashed in on any of your good fortune, brace yourself — you could be in line for a big tax bill.

“As excited as you are about the profits in your portfolio, the IRS is probably just as excited, knowing that investors are going to have to pay capital gains on those profits,” says Jonathan Lee, a senior vice president and investment adviser at U.S. Bank Private Wealth Management.

When you sell an asset such as a stock, a bond or a home, the profit you make — minus the cost basis, which is essentially the original price you paid — is considered a taxable capital gain. To give you an idea of how big a bite the IRS will take from last year’s investment gains, here’s a primer on 2024 capital gains tax rates for assets ranging from stocks to silver.

Retirement distributions

If you’re 59½ or older and withdrew money from a tax-deferred retirement account, such as a traditional individual retirement account (IRA) or 401(k), you’ll be taxed on that money at your ordinary income tax rate. Withdrawals before age 59½ are subject to an additional 10 percent tax, unless you meet certain exceptions. So any distributions from such accounts that you took in 2024 will be part of your taxable income, no different from a paycheck or interest on your savings account.

The federal tax brackets for 2024 are 10 percent, 12 percent, 22 percent, 24 percent, 32 percent, 35 percent and 37 percent. The income tax system is graduated: Individual taxpayers pay the top rate only on taxable income greater than $609,350, and married couples filing jointly would pay the top rate on income above $731,200.

One thing to watch out for: When you take a large distribution to pay for things such as your grandkids’ college tuition, the cost of a new car or a down payment on a home, "you can bump up to a higher tax bracket,” says Daniel Milan, managing partner at Virginia Beach, Virginia-based Cornerstone Financial Services. That could mean more of your income gets taxed at a higher rate.

“You do want to be mindful," Lee says. "Even if you have the best of intentions to fund your lifestyle or a grandchild’s car purchase, they are going to have tax implications."

Withdrawals from Roth IRAs and Roth 401(k)s aren’t subject to any taxes because these retirement savings accounts are funded with after-tax dollars. If you withdrew $100,000 from a Roth IRA to, say, buy a beach house, you would not owe taxes on the distribution.

Stocks and other assets

When you sell a stock or mutual fund for a profit, that profit is subject to capital gains tax. (That assumes the sale didn’t occur in a tax-protected account such as a 401[k] plan.) The same goes if you made a killing in cryptocurrency. The amount of tax you owe depends on how long you held the asset before selling it and what your overall taxable income is.

Profits on assets held for one year or less are considered short-term capital gains and taxed at ordinary income tax rates ranging from 10 percent to 37 percent.

Profits from assets you owned for more than a year are long-term capital gains and get more favorable tax treatment. The net capital gains tax for most individuals is no higher than 15 percent. However, the lower your taxable income, the lower your long-term capital gains rate will be.

0 percent capital gains rate: In 2024, you won't pay taxes on long-term gains if your income is $47,025 or less for a single filer, $94,050 or less for a married couple filing jointly or $63,000 or less if you file as head of household.

15 percent capital gains rate: The 15 percent tax kicks in for single filers with taxable income of more than $47,025 but less than or equal to $518,900; more than $94,050 but less than or equal to $583750 for married couples filing jointly; more than $63,000 but less than or equal to $551,350 for head of household; or more than $47,025 but less than or equal to $291,850 for married people filing separately.

20 percent capital gains rate: The higher 20 percent capital gains rate is levied when your taxable income exceeds the upper thresholds for the 15 percent rate.

So, holding on to an asset for more than a year is essentially a tax-reduction strategy. Here’s an example: Let’s say you’re a married couple with $150,000 in taxable income. Your marginal tax rate is 22 percent, so if you sell a stock you’ve owned for less than a year at a $10,000 gain, you’ll pay $2,200 in taxes. But if you held that same stock for at least a year before selling it, you’d pay $1,500 because of the lower rate for long-term capital gains. Just by holding the asset for more than a year, you increase your after-tax profit by $700.

The tax savings are even greater for higher earners. If you're in the 37 percent tax bracket, that $10,000 gain on a short-term asset will cost $3,700 in taxes. Because of your income, your tax rate on a long-term gain would be higher than in the prior example — 20 percent instead of 15 percent — but you'd save $1,700 in capital gains taxes compared to a short-term sale.

“If you hold for one year and one day, you get a completely different tax bill than if you held it for one less day,” says Hayden Adams, director of tax and wealth management for the Schwab Center for Financial Research.

Capital gains from stock and other asset sales are usually shown on Form 1099-B sent to you by your broker, bank or fund company.

Net investment income tax

The tax hit is even bigger on high earners who also have hefty investment income from assets such as interest, dividends and capital gains. If your modified adjusted gross income (MAGI) tops $200,000 (single or head of household), $250,000 (married filing jointly) or $125,000 (married filing separately), you may also owe a 3.8 percent net investment income tax, or NIIT, on top of capital gains you have to pay. “It’s a tax on investment income, so if you don’t have any investment income, you don’t owe the NIIT tax,” explains Tim Steffen, director of advanced planning at Baird Private Wealth Management.

This tax was put in place in 2013 to help fund the Affordable Care Act. The 3.8 percent add-on tax applies only to your total net investment income or the portion of your MAGI that goes over the income threshold for your filing status, whichever is less. (It doesn’t apply to gains on the sale of your personal residence.)

Steffen offers an example of how it works: If a married couple has $260,000 in total income, "the most that would be subject to the NIIT tax is $10,000" — the difference between their income and their NIIT threshold. But if they have less than $10,000 in investment income — say, $2,000 — they would only pay the 3.8 percent tax on that amount.

Real estate

Sales of existing homes fell to a 30-year low in 2024, according to the National Association of Realtors. Still, the median sales price climbed 6 percent, to a record-high $407,500 last year. Homeowners who took advantage of the steep increase by selling in 2024 may face sizable capital gains tax bills. If you’re a single filer, home-sale profits above $250,000 are taxed as capital gains; for married couples filing jointly, the threshold is $500,000.

In markets where homes are selling for millions of dollars, the net profit on a sale can far exceed the tax-free exemptions the IRS offers. For instance, “If you’re married and bought a home for $500,000 more than a year ago and you [sold] it for $1 million, there’s no tax,” Milan explains. “But if you sold it for $1.25 million, you’ll have a capital gain of $250,000.” That extra gain will be taxed at the long-term capital gains rate of either 15 percent (for a tax hit of $37,500) or 20 percent ($50,000), depending on your overall taxable income.

To minimize your capital gains taxes on home sales, make sure you tally up your tax basis (your total cost of buying and owning a property) correctly. Your cost basis is used to calculate capital gains and includes not only your purchase price but also money spent on home improvements and fees paid at closing when you sell.

“If you put an addition on the home, you’ve landscaped the property or you put a new roof on the house, all of those things count toward your cost basis,” Steffen says. A higher cost basis reduces what you’ll owe in capital gains tax.

Second homes

Tax savings are harder to come by when you own a second property, such as a vacation home. The IRS treats second homes as a capital asset. When you sell, your profits are taxed as a capital gain, just like stocks. So if you bought a vacation home for $500,000 and sold it two years later for $600,000, you’ll most likely pay a 15 percent long-term capital gains tax on your $100,000 profit.

Precious metals

If you sold assets such as gold, silver or other precious metals in 2024, you’re looking at a 28 percent capital gains tax because the IRS treats these items as “collectibles." The 28 percent rate also applies to profits from other collectibles, such as art and coins, and to exchange-traded funds (ETFs) that invest in gold and silver.

How to deduct capital losses from your tax bill

If you have more losses than gains from certain assets such as stocks, mutual funds and bonds, you can deduct up to $3,000 of those losses from your taxable income. If you have more than $3,000 in capital losses, you can carry over the rest of your losses for future years. “From a tax-planning perspective, that is an opportunity to harvest losses to reduce your tax liability,” Lee says.

To report capital gains losses, you'll need to submit Form 8949 with your tax return.

Cameron Huddleston is an award-winning personal finance journalist and author of Mom and Dad, We Need to Talk: How to Have Essential Conversations With Your Parents About Their Finances. Her work has appeared in Kiplinger.com, Kiplinger's Personal Finance, Forbes Advisor, Chicago Tribune, Business Insider and many more online and print publications.