How are capital gains, dividends, and interest taxed?
These three are taxed differently, and the difference is character rather than amount. Interest is generally ordinary income. Dividends are ordinary unless they qualify for the rates that apply to long-term capital gains. Gains are short-term or long-term depending on how long the asset was held.
Long-term capital gains and qualified dividends are taxed under a preferential rate schedule; short-term gains and ordinary dividends are taxed like wages. Nothing here is a flat rate — what applies depends on filing status and total taxable income.
Above statutory income thresholds an additional tax on net investment income can apply on top of whichever rate schedule is in play.
Reviewed by Bay Area Wealth Advisors. Last reviewed 2026-09-16. Educational information only — not individualized financial, tax or legal advice.