Is Capital Gains Tax 15% or 20%?
Taxpayers are generally surprised to learn that federal capital gains tax is not set at one fixed rate. The answer to whether the rate is 15% or 20% changes in accordance with the amount of income generated and how long the asset was held before it was sold. Such a distinction becomes more relevant once layered with state-level taxation in Massachusetts.
Federal Capital Gains Tax Rates
It should be recognized that the federal government applies different rates to long-term capital gains—more specifically, the assets held for more than a year—in parallel to the income thresholds. These brackets are subject to annual adjustments. For the 2024 tax year, the rates are outlined below:
0%: For lower-income taxpayers (e.g., under ~$47,000 for single filers)
15%: For most taxpayers, including middle-income households
20%: For high earners (individuals over ~$492,000 or married couples above ~$553,000)
In addition to these rates, a 3.8% Net Investment Income Tax (NIIT) might be applied to higher-income filers, in line with their modified adjusted gross income.
In a nutshell:
The rate may be 15% for many taxpayers
It may rise to 20% for those in the top tax bracket
It could effectively reach 23.8% with NIIT included
How This Works in Massachusetts
If the sale involved a capital asset while living in Massachusetts, it should be recognized that federal vs. state capital gains rules operate independently. The Massachusetts capital gains rate is as outlined below:
5% for long-term capital gains
12% for short-term capital gains and collectibles
This is added on top of any federal obligation.
Quick Highlights
Federal capital gains tax may be 0%, 15%, or 20%
A 3.8% NIIT may increase the total federal burden
The Massachusetts capital gains rate is 5% for long-term holdings
Income level—not age—determines tax rate (i.e., no capital gains tax age exemption).
Special exclusions may be applied to the capital gains tax on real estate in MA
Summary
As a final note, recognizing whether capital gains are taxed at 15% or 20% necessitates looking at the full picture—income level and holding period alongside state residency. The answer to how much is capital gains tax in Massachusetts, will always change in parallel to the federal vs. state capital gains factors. For further assistance, contact Dimov Associates today.
