Capital Gains Tax
Capital gains tax is a tax on the profit from selling investments or assets. Short-term gains (assets held less than 1 year) are taxed as ordinary income; long-term gains (held more than 1 year) receive preferential rates of 0%, 15%, or 20% based on income.
Exam Tip
Short-term (<= 1 year) = ordinary income rates. Long-term (> 1 year) = 0%, 15%, or 20%. NIIT adds 3.8% for high earners. Wash sale = 30 days.
What is Capital Gains Tax?
Capital gains tax is levied on the profit realized when you sell an investment or asset for more than its purchase price. The tax rate depends primarily on how long you held the asset before selling (holding period).
Short-Term vs. Long-Term Capital Gains
| Type | Holding Period | Tax Treatment |
|---|---|---|
| Short-Term | 1 year or less | Taxed as ordinary income (10%-37%) |
| Long-Term | More than 1 year | Preferential rates (0%, 15%, or 20%) |
2025 Long-Term Capital Gains Tax Rates
| Tax Rate | Single Filers | Married Filing Jointly | Head of Household |
|---|---|---|---|
| 0% | Up to $48,350 | Up to $96,700 | Up to $64,750 |
| 15% | $48,351 - $533,400 | $96,701 - $600,050 | $64,751 - $566,700 |
| 20% | Over $533,400 | Over $600,050 | Over $566,700 |
Short-Term Capital Gains Tax Rates (2025)
Short-term gains are added to ordinary income and taxed at your marginal rate:
| Tax Bracket | Single | Married Filing Jointly |
|---|---|---|
| 10% | Up to $11,925 | Up to $23,850 |
| 12% | $11,926 - $48,475 | $23,851 - $96,950 |
| 22% | $48,476 - $103,350 | $96,951 - $206,700 |
| 24% | $103,351 - $197,300 | $206,701 - $394,600 |
| 32% | $197,301 - $250,525 | $394,601 - $501,050 |
| 35% | $250,526 - $626,350 | $501,051 - $751,600 |
| 37% | Over $626,350 | Over $751,600 |
Net Investment Income Tax (NIIT)
High-income taxpayers may owe an additional 3.8% surtax on investment income:
- Single: MAGI over $200,000
- Married Filing Jointly: MAGI over $250,000
- This can result in a maximum rate of 23.8% on long-term gains (20% + 3.8%)
Special Capital Gains Rates
| Asset Type | Maximum Rate |
|---|---|
| Collectibles (art, coins, antiques) | 28% |
| Qualified Small Business Stock (Section 1202) | Up to 100% exclusion |
| Real Estate (Section 1250) | 25% on depreciation recapture |
Capital Loss Rules
- Capital losses offset capital gains dollar-for-dollar
- Excess losses can offset up to $3,000 of ordinary income per year
- Remaining losses carry forward indefinitely
Wash Sale Rule
If you sell a security at a loss and buy a substantially identical security within 30 days before or after the sale, the loss is disallowed for tax purposes.
Exam Alert
- Short-term gains (held 1 year or less) = taxed as ORDINARY INCOME
- Long-term gains (held MORE than 1 year) = preferential rates of 0%, 15%, or 20%
- The holding period starts the day AFTER purchase and includes the sale date
- Net Investment Income Tax adds 3.8% for high earners (over $200K single/$250K married)
- Capital losses offset gains first, then up to $3,000 of ordinary income
- Wash sale rule: 30 days before OR after disallows loss deduction
Study This Term In
Related Terms
Capital Gain
SecuritiesA capital gain is the profit realized when an investment or asset is sold for more than its original purchase price, subject to taxation based on holding period.
Wash Sale Rule
SecuritiesThe wash sale rule is an IRS regulation that disallows a tax deduction for a security sold at a loss if a substantially identical security is purchased within 30 days before or after the sale.