Capital gains tax in United States

What are the US federal capital gains tax rates for 2025?

The Internal Revenue Service publishes annual long-term capital gains bracket thresholds in the Revenue Procedure that adjusts most inflation-indexed tax figures. For tax year 2025 (returns filed in 2026), Rev. Proc. 2024-40 sets the long-term capital gains brackets as follows for the four common filing statuses [SC1]. Single filers pay 0 percent on long-term gains within the lowest band of taxable income (up to USD 48,350), 15 percent in the middle band (USD 48,351 through USD 533,400), and 20 percent above USD 533,400. Married-filing-jointly filers pay 0 percent up to USD 96,700, 15 percent through USD 600,050, and 20 percent above that. Head-of-household filers fall between the two: 0 percent up to USD 64,750, 15 percent through USD 566,700, and 20 percent above. Married-filing-separately filers mirror the single brackets at half values for the top bracket.

Short-term capital gains — gains on assets held one year or less — are taxed at the filer's ordinary marginal income tax rate, running 10, 12, 22, 24, 32, 35, or 37 percent through the seven 2025 ordinary brackets [SC2]. Because short-term gains are stacked on top of wages and other ordinary income, a high-bracket filer can pay 37 percent federal on a short-term gain that the same filer would pay 15 or 20 percent on if held more than one year. The holding period clock matters: gains held exactly 365 days are short-term; gains held 366 days or more are long-term.

How does the holding period work for long-term versus short-term?

The holding period under IRC §1223 begins the day after acquisition and ends on the date of disposition [SC1]. For most marketable securities, that means the day after the trade date for the purchase and the trade date for the sale, although settlement-date conventions can apply in narrow cases. For inherited property, the holding period is automatically long-term regardless of how long the heir actually held the asset, under IRC §1223(11). For gifted property, the donor's holding period tacks onto the recipient's, so a recipient inherits the donor's accumulated holding period.

Special holding-period rules apply to wash sales under IRC §1091. A wash sale occurs when a filer sells a security at a loss and then acquires the same or substantially identical security within 30 days before or after the sale. The loss is disallowed and instead added to the basis of the replacement security, and the holding period of the disallowed-loss security carries over. Wash sale rules apply to stocks, securities, and options, and the IRS has taken the position that they apply to substantially-identical crypto and that broker reporting will reflect that position [SC3]. Index funds and ETFs tracking the same index can trigger a wash sale; ETFs tracking different indexes typically do not.

What is the Net Investment Income Tax and who pays it?

The Net Investment Income Tax (NIIT) under IRC §1411 is an additional 3.8 percent tax on the lesser of net investment income or modified adjusted gross income (MAGI) above filing-status thresholds [SC4]. The thresholds are USD 200,000 for single filers and heads of household, USD 250,000 for married filing jointly and qualifying widow(er), and USD 125,000 for married filing separately. These thresholds are NOT indexed for inflation; they have been fixed since the NIIT took effect in 2013 under the Affordable Care Act.

Net investment income includes interest, dividends, capital gains, rental and royalty income, non-qualified annuities, and income from businesses involved in trading financial instruments or commodities and businesses that are passive activities to the taxpayer. It does NOT include distributions from qualified retirement accounts, wages, self-employment income, Social Security benefits, tax-exempt interest, or active trade or business income. Capital gains in scope include realized gains on stocks, bonds, mutual funds, real-estate dispositions (except principal-residence gains excluded under Section 121), business sales, and most distributions of capital gains from passthrough entities.

A single filer with USD 300,000 of wages and USD 50,000 of net capital gains will owe NIIT on the lesser of USD 50,000 (the net investment income) or USD 100,000 (MAGI above the USD 200,000 threshold). The lesser is USD 50,000, so NIIT equals 3.8 percent of USD 50,000, or USD 1,900. The same filer with USD 195,000 of wages and USD 50,000 of capital gains has MAGI of USD 245,000, which is USD 45,000 above the threshold; NIIT applies to the lesser of USD 50,000 or USD 45,000, so the tax is 3.8 percent of USD 45,000, or USD 1,710.

How does the Section 121 home-sale exclusion work?

IRC §121 excludes USD 250,000 of gain on the sale of a principal residence for single filers and USD 500,000 for married filing jointly [SC1]. To qualify, the seller must have owned the home and used it as a principal residence for at least two of the five years ending on the date of sale (the ownership and use tests), and must not have excluded gain on another home sale within the two years preceding the current sale. The two periods within the five-year window need not be continuous and need not coincide.

A partial exclusion is available when the seller fails the two-year test but the sale is caused by an unforeseen circumstance, a change in place of employment, or a health-related move. The partial exclusion equals the full exclusion multiplied by the fraction of qualifying ownership and use time over two years. A surviving spouse can claim the USD 500,000 MFJ exclusion on a sale within two years of the deceased spouse's death if the couple would have qualified jointly. Married couples each must meet the use test; only one need meet the ownership test.

Gain from periods of non-qualified use after 2008 (years when the property was not the principal residence) is allocated and remains taxable. Depreciation taken on the property during business or rental use is recaptured under Section 1250 at the maximum 25 percent unrecaptured Section 1250 rate, separate from any Section 121 exclusion.

Section 1031 like-kind exchanges and real-estate deferral

IRC §1031 allows deferral of gain on the exchange of real property held for productive use in a trade or business or for investment, when exchanged solely for real property of like kind held for the same purpose [SC1]. The Tax Cuts and Jobs Act of 2017 narrowed Section 1031 to real property only; personal property and intangible asset exchanges no longer qualify. The taxpayer must identify replacement property within 45 days of the relinquished-property transfer and complete the acquisition within 180 days of that transfer or by the return due date (including extensions) for the tax year, whichever comes first.

Gain not deferred ("boot" — cash or non-like-kind property received) is recognized to the extent of boot received. Qualified intermediary structures are the standard mechanism for arranging a 1031 exchange because direct receipt of proceeds by the taxpayer terminates the deferral. Reporting is on Form 8824. Section 1031 is a deferral mechanism, not a forgiveness; the deferred gain attaches to the replacement property's basis and is recognized on a future taxable disposition. A step-up in basis at the holder's death under IRC §1014 can extinguish the deferred gain without ever taxing it.

Section 1250 unrecaptured gain and depreciation recapture

Real property used in a trade or business or held for the production of income generates depreciation deductions that reduce ordinary income at the filer's marginal rate. On sale of that property at a gain, the portion of gain attributable to allowed-or-allowable depreciation is recaptured under IRC §1250 at a maximum 25 percent rate — the "unrecaptured Section 1250 gain" rate [SC1]. The rate is the lesser of 25 percent or the filer's regular long-term capital gains rate. Gain in excess of the depreciation recapture is taxed at standard long-term capital gains rates.

Unlike Section 1245 recapture on personal property (which is recaptured at ordinary rates), Section 1250 recapture is limited to the 25 percent cap, which preserves a degree of preferential treatment for real-estate gains. The mechanism is reported on Form 4797. Section 1250 recapture interacts with the NIIT — the recaptured portion is investment income for NIIT purposes for filers above the MAGI thresholds.

Collectibles and the 28 percent rate

Gains from the sale of collectibles held more than one year are taxed at a maximum 28 percent rate under IRC §1(h)(4) [SC1]. Collectibles include works of art, rugs and antiques, metals (gold, silver) and gems, stamps, coins, alcoholic beverages, and any other tangible personal property the IRS has designated as a collectible. For most filers, the 28 percent collectibles rate exceeds the standard 20 percent long-term rate, so the collectibles rate is a ceiling rather than a floor. A filer in a 12 percent ordinary bracket whose long-term capital gain rate would otherwise be 0 or 15 percent will pay only that lower bracket rate on collectibles gains, capped at 28 percent.

The IRS classifies gain from the sale of physical gold and silver coins as a collectible. Gain on exchange-traded funds and trusts backed by physical precious metals is treated the same way under longstanding IRS guidance because the underlying asset is the collectible. ETFs holding precious metals futures contracts rather than physical metal are taxed differently — gains and losses are recognized annually on a mark-to-market basis under IRC §1256, with 60 percent treated as long-term and 40 percent short-term regardless of actual holding period.

Capital loss harvesting and the USD 3,000 ordinary-income offset

Net capital losses offset net capital gains without limit; net losses in excess of net gains offset ordinary income up to USD 3,000 per year for single, MFJ, head-of-household, and qualifying widow(er), and USD 1,500 for married filing separately [SC1]. Net losses above the annual cap carry forward indefinitely as capital losses in subsequent tax years, retaining their long-term or short-term character. Tax-loss harvesting — selling positions at a loss to offset realized gains or to claim the USD 3,000 ordinary offset — is a common end-of-year action for filers with significant unrealized losses in taxable accounts.

Wash sale rules in IRC §1091 are the principal trap. A filer who sells a position at a loss and repurchases substantially identical securities within 30 days before or after triggers wash sale disallowance; the loss is added to the basis of the replacement shares and the holding period tacks. Loss harvesting between taxable and IRA accounts is treated as a wash sale by IRS guidance and disallows the loss permanently because the IRA receives the basis adjustment but the loss is never recoverable. Cross-account harvesting between two of the filer's own taxable accounts is allowed only when the replacement security is not substantially identical.

For international filers managing cross-border investment accounts, currency-conversion mechanics matter: a US person reporting in USD must convert foreign-currency capital gains and losses at the relevant exchange rates, which can convert a loss in local currency to a gain in USD or vice versa. Tools like WorldFirst for managing multi-currency balances are common in the expat-tax filer's stack alongside US capital-gain reporting on Form 8949.

How does state-level capital gains taxation work?

Thirty-two states plus the District of Columbia tax long-term capital gains as ordinary income at the state's regular income tax rates [SC5]. Nine states have no state-level income tax — Alaska, Florida, Nevada, New Hampshire (which taxes interest and dividends only), South Dakota, Tennessee, Texas, Washington, and Wyoming — and so do not tax capital gains at the state level. Washington imposes a 7 percent capital gains excise tax on long-term gains above an annual threshold (USD 270,000 for 2025) that survived state-court challenge in 2023.

A handful of states offer preferential capital gains treatment. South Carolina excludes 44 percent of net long-term capital gains from state taxable income. New Mexico excludes 50 percent of capital gains from certain qualifying assets. Wisconsin excludes 30 percent of net long-term capital gains on assets held more than one year, with a 60 percent exclusion for gains on qualifying small-business stock. State-level credit for capital gains tax paid to another state — relevant for filers selling property in a non-resident state — is governed by the resident state's credit-for-tax-paid statute and generally limited to the lesser of the non-resident state's tax or the resident state's tax on the same income.

Reporting capital gains: Form 8949 and Schedule D

Individual filers report capital asset dispositions on Form 8949 (Sales and Other Dispositions of Capital Assets) and roll the totals into Schedule D (Capital Gains and Losses) [SC1]. Each disposition is reported with the asset description, acquisition date, disposition date, proceeds, cost basis, and any adjustments (e.g., wash sale loss disallowed). Form 8949 is split into Part I (short-term) and Part II (long-term), each with three sub-sections for transactions where basis was reported to the IRS on Form 1099-B (Box A/D), not reported to the IRS (Box B/E), or not reported on Form 1099-B at all (Box C/F).

Broker-reported transactions for which basis is reported to the IRS (covered securities) can be summarized on Schedule D without itemizing each line on Form 8949, provided no adjustments are required. Non-covered securities, securities acquired before broker basis reporting rules took effect, and any transaction with adjustments must be itemized on Form 8949. From tax year 2025 forward, broker reporting requirements for digital assets are phased in under Treasury final regulations TD 10000, with Form 1099-DA replacing Form 1099-B for crypto dispositions [SC3]. Filers managing 1099 issuance for their own contractor payments may find platform tools like Tax1099 useful alongside their capital-gain reporting workflow.

Foreign capital assets above thresholds trigger additional reporting on Form 8938 (Statement of Specified Foreign Financial Assets), and foreign bank accounts above USD 10,000 aggregate balance at any point during the year trigger FBAR reporting on FinCEN Form 114. Both forms are informational; tax is still computed and paid on Form 1040 with capital gains flowing through Schedule D. Cross-border filers commonly use the Streamlined Filing Procedures for delinquent FBAR or Form 8938 filings where non-wilful conduct can be documented.

For neutral, source-cited reading on the related US topics that compose a complete capital-gains-tax picture, see Crypto taxation in the United States for Form 1099-DA and digital-asset disposition mechanics, Dividend and investment tax for qualified-dividend interaction with the capital gains brackets, Expat tax residency for the saving-clause effect on cross-border filers, and the US federal tax overview for the full federal stack. The general capital gains tax topic hub compares US treatment with the EU and Asia-Pacific picture. Filers seeking a credentialed local practitioner can browse the US tax-pros directory.