When you sell an asset for more than you paid, the profit is a capital gain. Whether that gain is taxed at your ordinary income rate or at a lower preferential rate depends on one thing: how long you held the asset before selling. Short-term gains — from assets held one year or less — are taxed as ordinary income. Long-term gains — from assets held more than one year — are taxed at 0%, 15%, or 20% depending on your total taxable income for the year.
This is general information about tax law, not tax advice — consult a qualified tax professional about your specific situation.
What Is a Capital Gain?
A capital gain is the difference between an asset's sale price and its cost basis. Cost basis is typically what you originally paid for the asset, though it can be adjusted for improvements, stock splits, reinvested dividends, or inherited property rules.
Example: You buy 50 shares of stock for $2,000 and later sell them for $3,500. Your capital gain is $1,500. Whether that $1,500 is taxed at 10%–37% or at 0%–20% depends entirely on how long you owned those shares.
Capital gains are reported on Schedule D of your federal income tax return. The IRS provides detailed guidance on this in Topic No. 409, Capital Gains and Losses.
Short-Term vs. Long-Term: The Holding Period
The IRS draws a clear line at one year.
- Short-term capital gain: Asset held one year or less before sale. Taxed as ordinary income — the same rates that apply to wages and salaries (10%, 12%, 22%, 24%, 32%, 35%, or 37% for 2025, depending on your income and filing status). See the 2026 Tax Brackets Explained guide for ordinary income rate details.
- Long-term capital gain: Asset held more than one year before sale. Taxed at the preferential rates of 0%, 15%, or 20%.
The holding period begins the day after you acquire an asset and ends on the day you sell it. If you bought stock on March 5, 2024, you must hold it until at least March 6, 2025 for any gain to qualify as long-term.
This distinction is significant because the spread between short-term and long-term treatment can be substantial. A taxpayer in the 22% ordinary income bracket pays 22% on short-term gains but 15% on long-term gains — a 7-percentage-point difference.
2025 Long-Term Capital Gains Rate Brackets
For the 2025 tax year, long-term capital gains are taxed at three rates — 0%, 15%, or 20% — based on your total taxable income (not just the gain itself). The thresholds below are sourced from IRS guidance including Topic No. 409 and Rev. Proc. 2025-32.
2025 Long-Term Capital Gains Tax Rates by Filing Status
| Rate | Single | Married Filing Jointly | Married Filing Separately | Head of Household |
|---|---|---|---|---|
| 0% | Up to $48,350 | Up to $96,700 | Up to $48,350 | Up to $64,750 |
| 15% | $48,351 – $533,400 | $96,701 – $600,050 | $48,351 – $300,000 | $64,751 – $566,700 |
| 20% | Over $533,400 | Over $600,050 | Over $300,000 | Over $566,700 |
These thresholds apply to taxable income, not gross income. Taxable income is what remains after subtracting your standard or itemized deductions.
Net Investment Income Tax (NIIT): Higher-income taxpayers may also owe an additional 3.8% NIIT on net investment income (which includes capital gains) if their modified adjusted gross income exceeds $200,000 (single) or $250,000 (married filing jointly). This can bring the effective federal rate on long-term gains to 23.8% for some filers. See IRS Topic No. 559 for details.
Common Assets That Generate Capital Gains
Capital gains rules apply broadly across asset types:
Stocks and mutual funds Gains on publicly traded stock are classified as short- or long-term based on the holding period. Mutual fund distributions can include capital gains passed through from the fund's own trading activity, even if you did not sell your fund shares.
Real estate Gains on investment property follow the same short/long-term rules. A primary home sale has a separate exclusion — up to $250,000 ($500,000 for married filing jointly) of gain may be excluded if you owned and lived in the home for at least two of the five years before the sale. Real estate also has depreciation recapture rules that can result in a portion of the gain being taxed at up to 25%.
Bonds Gains from selling a bond before maturity are capital gains. Interest income from bonds is taxed differently, as ordinary income.
Collectibles Art, coins, stamps, and other collectibles held more than one year are taxed at a maximum rate of 28% — not the standard 0/15/20% schedule.
Cryptocurrency The IRS treats cryptocurrency as property. Selling, trading, or converting crypto for goods and services triggers a taxable event. The short/long-term distinction applies based on the holding period of each unit.
Small business stock (Section 1202) Qualified Small Business Stock may be eligible for a partial or complete exclusion from federal capital gains tax if certain requirements are met. This is a complex area where professional guidance is particularly important.
For more on investment-related income and deductions, see the Self-Employed and 1099 Tax Guide and Commonly Missed Tax Deductions.
Offsetting Gains with Capital Losses (Tax-Loss Harvesting)
Capital losses — when you sell an asset for less than your basis — can offset capital gains dollar-for-dollar, reducing your taxable gain for the year.
Netting rules:
- First, short-term gains and losses are netted against each other.
- Long-term gains and losses are netted against each other.
- If one category produces a net gain and the other a net loss, they are netted against each other.
Deducting excess losses: If your total capital losses exceed your total capital gains for the year, you can deduct up to $3,000 of the excess loss against ordinary income ($1,500 if married filing separately). Any remaining unused loss carries forward to future tax years.
Wash-sale rule: The IRS disallows a loss deduction if you buy the same or a "substantially identical" security within 30 days before or after the sale that generated the loss. This is called the wash-sale rule. It applies to stocks, bonds, and mutual funds — though its application to cryptocurrency has been an evolving area of tax law.
Intentional realization of losses to offset gains is sometimes called "tax-loss harvesting." This is a planning strategy where the timing of decisions can have meaningful tax consequences — making it an area where working with a tax professional can be particularly valuable.
Frequently Asked Questions
Q: What is the difference between short-term and long-term capital gains? A: Short-term capital gains come from assets held one year or less and are taxed at ordinary income tax rates (10%–37%). Long-term capital gains come from assets held more than one year and are taxed at preferential rates of 0%, 15%, or 20%, depending on taxable income.
This is general information, not tax advice — consult a qualified tax professional for guidance on your specific situation.
Q: What are the long-term capital gains tax rates for 2025? A: For tax year 2025, the rates are 0%, 15%, and 20%. A single filer with taxable income up to $48,350 pays 0%; from $48,351 to $533,400 pays 15%; and above $533,400 pays 20%. Thresholds differ by filing status — see the table above for all filing statuses.
Q: How is the holding period calculated? A: The holding period begins the day after you acquire the asset and ends on the day of sale. You must hold an asset for more than 365 days (not exactly 365) for the gain to be long-term.
Q: Can capital losses reduce my tax bill? A: Capital losses offset capital gains dollar-for-dollar. If losses exceed gains, up to $3,000 ($1,500 if married filing separately) can be deducted against ordinary income per year. Unused losses carry forward indefinitely.
Q: Are there assets where different rates apply? A: Yes. Collectibles (art, coins, antiques) are taxed at a maximum 28% rate for long-term gains. Depreciation recapture on real estate can be taxed at up to 25%. Section 1202 qualified small business stock may qualify for exclusions. These rules are more complex than the standard schedule.
Q: Where can I find more information from the IRS? A: IRS Topic No. 409 is the primary IRS resource on capital gains and losses. Publication 550 covers investment income and expenses in detail. You can also visit the TaxProsRated Newsroom for additional guides on tax topics.
This is general information about federal tax law, not tax advice — consult a qualified tax professional about your specific situation.