Long-Term Capital Gain (EA Exam)
A long-term capital gain is the profit from selling a capital asset held for more than one year. Taxed at preferential rates: 0% (up to $48,350 single), 15% (up to $533,400), or 20% (above). The 3.8% Net Investment Income Tax (NIIT) applies for high earners, creating a maximum effective rate of 23.8%.
Exam Tip
LTCG rates: 0%/15%/20%. Held MORE than 1 year. Collectibles = max 28%. Section 1250 = max 25%. NIIT adds 3.8% for high earners. Net losses offset up to $3,000 ordinary income.
What is a Long-Term Capital Gain?
A long-term capital gain results from selling a capital asset held MORE than one year. The holding period starts the day after acquisition and includes the sale date.
2025 Long-Term Capital Gains Rates
| Rate | Single | MFJ |
|---|---|---|
| 0% | Up to $48,350 | Up to $96,700 |
| 15% | $48,351-$533,400 | $96,701-$600,050 |
| 20% | Over $533,400 | Over $600,050 |
| +3.8% NIIT | Over $200,000 MAGI | Over $250,000 MAGI |
Special Capital Gains Rates
| Asset Type | Maximum Rate |
|---|---|
| Collectibles (art, coins, stamps) | 28% |
| Section 1250 unrecaptured gain | 25% |
| Qualified small business stock (Section 1202) | Varies (50-100% exclusion) |
Short-Term vs. Long-Term
| Feature | Short-Term | Long-Term |
|---|---|---|
| Holding period | 1 year or less | More than 1 year |
| Tax rate | Ordinary income rates | 0%, 15%, or 20% |
| Netting | Net within category first | Net within category first |
Exam Alert
Holding period: MORE than 1 year = long-term. Starts day AFTER purchase, includes sale date. Net short-term gains/losses separately from long-term, then net against each other. Collectibles max 28%. Unrecaptured 1250 gain max 25%. Capital losses offset gains first, then up to $3,000 ordinary income.
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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.
Basis (Tax Basis)
Basis is the cost or adjusted value of an asset used to determine gain or loss on sale or disposition. Original cost basis includes purchase price plus improvements minus depreciation. Gift basis equals the donor's basis (carryover), while inherited property receives a stepped-up basis to fair market value at death.
Like-Kind Exchange (Section 1031)
A like-kind exchange under IRC Section 1031 allows taxpayers to defer capital gains tax by exchanging qualifying real property held for business or investment purposes for similar property. The replacement property must be identified within 45 days and the exchange completed within 180 days. Personal property no longer qualifies after the Tax Cuts and Jobs Act (2017).
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