How capital gains tax works in United States
In the U.S., the key split is between short-term and long-term gains. Short-term gains are usually taxed as ordinary income, while long-term gains and qualified dividends can get lower federal rates.
The 3.8% net investment income tax can apply to interest, dividends, capital gains, rents and similar investment income once income crosses the statutory thresholds.
Not all gains fit the same bucket. Collectibles and some section 1202 qualified small-business stock gains can face up to a 28% federal rate, and some real-estate gains are governed by separate rules.
State treatment still matters. Many states tax gains like ordinary income, so the federal rate is often only the starting point.
Tax rates at a glance
- Long-term capital gains
- 0% - 20%Preferential
- Short-term capital gains
- 10% - 37%
- Qualified dividends
- 0% - 20%
- NIIT
- 3.8%
Who benefits most
These profiles tend to benefit most when the rules match their real residence, payroll and business setup.
InvestorsFoundersHigh earnersFamily officesExpats
Watch out for
- Short-term gains are ordinary income in disguise. Holding period is often the difference between a manageable bill and a high marginal rate.
- Qualified dividends only get the lower rate if the holding-period and other IRS rules are met.
- The 3.8% NIIT can sit on top of the capital gains rate for higher-income taxpayers.
- State law can erase some of the federal advantage because many states do not give special capital-gains treatment.
Frequently asked questions
What is the capital gains tax rate in the U.S.?
Long-term gains are generally taxed at 0%, 15% or 20% federally. Short-term gains are taxed as ordinary income.
Are dividends taxed like capital gains?
Qualified dividends usually are. They get the same 0%, 15% or 20% federal rate bands as long-term capital gains.
Do states tax capital gains?
Often yes. Many states tax capital gains the same way they tax ordinary income, so the state layer can be as important as the federal one.