Capital Gains Tax

A capital gain occurs when you sell an asset for more than your cost basis — generally, the amount you originally paid for it. Capital gains are classified as either short-term or long-term based on how long you held the asset. Short-term capital gains, on assets held for one year or less, are taxed at your ordinary income tax rate. Long-term capital gains, on assets held for more than one year, benefit from lower tax rates.

For 2025, the long-term capital gains tax rates are 0% for taxable income up to certain thresholds (approximately $48,350 for single filers and $96,700 for married filing jointly), 15% for income above that level up to roughly $533,400 (single) or $600,050 (married filing jointly), and 20% for income above those thresholds. These brackets are adjusted annually for inflation.

In addition to the standard capital gains tax rates, high-income taxpayers may be subject to the 3.8% Net Investment Income Tax (NIIT) on investment income, including capital gains, when their modified adjusted gross income exceeds certain thresholds. This effectively raises the top long-term capital gains rate to 23.8% for affected taxpayers.

Capital gains planning can involve a variety of strategies. Tax-loss harvesting, or selling investments at a loss to offset gains, is one common approach. Timing the sale of appreciated assets in years with lower income, donating appreciated securities to charity (to avoid the gain entirely), and utilizing the 0% capital gains bracket are other strategies that may be worth exploring. For real estate, the primary residence exclusion allows single filers to exclude up to $250,000 of gain ($500,000 for married couples) from the sale of a home they have lived in for at least two of the last five years.