2025 Capital Gains Tax Rates — Short-Term & Long-Term

Long-Term Capital Gains Tax 2025

Long-term capital gains are profits from selling assets you have held for more than one year. The IRS taxes these gains at preferential rates that are significantly lower than ordinary income tax rates. For 2025, there are three long-term capital gains tax brackets: 0%, 15%, and 20%.

Your applicable rate depends on your taxable income, not just the gain itself. This means you could pay 0% on your capital gains even if you have a substantial gain, as long as your total taxable income falls within the 0% bracket thresholds.

2025 Long-Term Capital Gains Tax Rates — All Filing Statuses

How Long-Term Capital Gains Are Taxed

Long-term capital gains are taxed on top of your ordinary income. Your ordinary income fills the tax brackets first, and your capital gains sit on top. This means your capital gains rate is determined by your total taxable income, not just the gain amount.

Example: A single filer has $50,000 in ordinary income and $30,000 in long-term capital gains. After the standard deduction of $15,000, their taxable ordinary income is $35,000. This leaves room in the 0% capital gains bracket ($47,025 max) — so all $30,000 of their capital gains are taxed at 0%.

Short-Term Capital Gains

Short-term capital gains apply to assets you have held for one year or less. Unlike long-term gains, short-term gains receive no preferential tax treatment — they are taxed at your ordinary income tax rates, which range from 10% to 37% depending on your income level.

This distinction creates a powerful incentive to hold investments for at least one year and one day. The difference between short-term and long-term rates can be substantial. For example, a single filer in the 24% ordinary income bracket would pay 24% on short-term gains but only 15% on long-term gains — a savings of 9 percentage points.

For a full breakdown of ordinary income tax brackets by filing status, see our Federal Tax Brackets guide.

Capital Gains Holding Periods

The holding period determines whether a capital gain is classified as short-term or long-term. This distinction is critical because it determines which tax rate applies.

The One-Year Rule

To qualify for long-term capital gains rates, you must hold the asset for more than one year — specifically, at least one year and one day. The holding period begins the day after you acquire the asset and ends on the day you sell it.

Special Holding Period Rules

• Gifted assets: The holding period includes the time the previous owner held the asset (tacked holding period).
• Inherited assets: Inherited assets are always treated as long-term regardless of how long the decedent held them.
• Mutual fund shares: The holding period for shares acquired through dividend reinvestment is calculated separately for each lot.
• Wash sales: If you sell a security at a loss and buy a substantially identical security within 30 days before or after, the loss is disallowed and the holding period of the replacement shares is adjusted.

Net Investment Income Tax (NIIT)

The Net Investment Income Tax (NIIT) is a 3.8% surtax that applies to certain investment income for higher-income taxpayers. It was introduced as part of the Affordable Care Act and is imposed in addition to regular capital gains taxes.

NIIT Thresholds

How NIIT Is Calculated

The NIIT is 3.8% of the lesser of:

• Your net investment income, or
• The amount by which your modified adjusted gross income (MAGI) exceeds the threshold for your filing status

Example: A single filer with $220,000 MAGI and $30,000 in net investment income. Their MAGI exceeds the threshold by $20,000. The NIIT is 3.8% × $20,000 = $760 (since $20,000 is less than $30,000).

What Counts as Net Investment Income

• Capital gains from selling stocks, bonds, and mutual funds
• Dividends and interest
• Rental and royalty income
• Annuity income
• Passive business income

Wages, self-employment income, unemployment benefits, and Social Security benefits are not subject to NIIT.

What Counts as a Capital Gain/Loss

A capital gain occurs when you sell a capital asset for more than its cost basis (what you paid for it). A capital loss occurs when you sell for less than the cost basis. The IRS defines capital assets broadly to include most property you own.

Types of Capital Assets

Stocks, Bonds, and Mutual Funds

Securities are the most common source of capital gains and losses for individual investors. When you sell shares for a profit, the gain is taxable in the year of sale. Your cost basis is what you paid, including commissions. Most brokers now report adjusted cost basis on Form 1099-B.

Real Estate

Your primary residence qualifies for a special exclusion: up to $250,000 of gain ($500,000 for married couples filing jointly) is tax-free if you have lived in the home for at least two of the last five years. Investment real estate is fully taxable, but depreciation recapture rules may apply (see Special Rates below).

Collectibles

Collectibles such as art, antiques, stamps, coins, fine wine, and precious metals are subject to a special maximum capital gains rate of 28%. This rate applies regardless of your ordinary income tax bracket. If your ordinary rate is lower than 28%, your ordinary rate applies instead.

Cryptocurrency

The IRS treats cryptocurrency (Bitcoin, Ethereum, etc.) as property, meaning crypto transactions generate capital gains or losses. Every sale, trade, or use of crypto to purchase goods or services is a taxable event. The same holding period rules apply — crypto held for more than one year qualifies for long-term rates. Crypto losses can be harvested just like stock losses.

Capital Loss Harvesting

Tax-loss harvesting is a strategy where you sell investments at a loss to offset capital gains. Here is how the rules work:

• Short-term losses first offset short-term gains, then long-term gains
• Long-term losses first offset long-term gains, then short-term gains
• If total losses exceed total gains, you can deduct up to $3,000 per year ($1,500 if married filing separately) against ordinary income
• Remaining unused losses carry forward indefinitely to future tax years

For example, if you have $10,000 in short-term gains and $14,000 in short-term losses, the losses fully offset the gains, and you can deduct an additional $3,000 from your ordinary income. The remaining $1,000 carries forward to next year.

Investors should be aware of the wash sale rule, which can disallow a capital loss if you repurchase the same or substantially identical stock within 30 days.

Special Capital Gains Rates

Certain types of capital assets receive special tax treatment under the Internal Revenue Code. These rates differ from the standard long-term capital gains rates.

Collectibles: 28% Maximum Rate

Gains from the sale of collectibles — including art, antiques, stamps, coins, precious metals, and wine — are taxed at a maximum rate of 28%. If your ordinary income tax bracket is lower than 28%, your ordinary rate applies. This is significantly higher than the standard 15% or 20% long-term rates for most investors. Collectibles held for one year or less are taxed at ordinary income rates.

Section 1202 Qualified Small Business Stock (QSBS)

Under Section 1202 of the Internal Revenue Code, gains from the sale of qualified small business stock may be partially or fully excluded from federal income tax:

• Stock acquired after September 27, 2010: 100% exclusion (up to the greater of $10 million or 10× the adjusted basis)
• Stock acquired in 2010 (before September 28): 75% exclusion
• Stock acquired in 2009: 75% exclusion
• Stock acquired before 2009: 50% exclusion

The excluded gain is not subject to the alternative minimum tax (AMT) for stock acquired after September 27, 2010. The remaining gain (if any) is taxed at the standard long-term capital gains rate. The issuing corporation must be a C corporation with gross assets under $50 million at the time of stock issuance.

Real Estate Depreciation Recapture: 25%

When you sell rental or business real estate, the depreciation you previously claimed is recaptured and taxed as ordinary gain up to a maximum rate of 25%. This applies to the lesser of:

• The total depreciation claimed on the property, or
• The total gain on the sale

Any remaining gain beyond the depreciation recapture amount is taxed at the standard long-term capital gains rates (0%, 15%, or 20%). Section 1250 property (real estate) is subject to these rules, while Section 1245 property (personal property like equipment) has depreciation recaptured as ordinary income at your full marginal rate.

Qualified Dividends

Qualified dividends are taxed at the same preferential rates as long-term capital gains (0%, 15%, or 20%), not at ordinary income rates. To qualify, dividends must:

• Be paid by a US corporation or a qualified foreign corporation
• Not be listed as unqualified (e.g., REIT dividends, money market dividends, or certain preferred stock dividends)
• Meet the holding period requirement — you must have held the stock for more than 60 days during the 121-day period beginning 60 days before the ex-dividend date

Non-qualified dividends (including those from REITs, MLPs, and most foreign corporations not meeting treaty requirements) are taxed as ordinary income at your marginal rate.

State Capital Gains Taxes

Capital gains are taxed at the state level in most jurisdictions. How your state treats capital gains depends on whether the state has an income tax and how it defines taxable income.

Most States Tax Capital Gains as Ordinary Income

The majority of states with income taxes treat capital gains as ordinary income, applying the same state tax rates and brackets to capital gains as they do to wages, salaries, and other income. This means your state capital gains tax rate is simply your marginal state income tax rate.

Nine States with No Income Tax

The following states impose no state income tax at all, meaning capital gains are entirely free from state taxation:

States with Special Capital Gains Treatment

• Washington: Imposes a 7% tax on long-term capital gains exceeding $250,000 (indexed for inflation), though this is subject to legal challenges.
• New Hampshire: Taxes interest and dividend income at 5%, but does not tax other capital gains.
• California: Taxes all capital gains as ordinary income at rates up to 13.3%, the highest state rate in the country.
• New York: Taxes capital gains as ordinary income at rates up to 10.9% (including NYC resident surcharge).
• Oregon: Taxes capital gains as ordinary income but offers a deduction for net capital gain income — 40% of net capital gain is excluded from Oregon taxable income for assets held more than one year.
• North Dakota: Offers a capital gains exclusion for gains from the sale of qualified small business stock held more than five years.

For complete details on your state's approach, see our State Tax Rates guide.

How to Reduce Capital Gains

There are several legitimate strategies to minimize or eliminate capital gains taxes. Here are the most effective approaches:

Tax-Loss Harvesting

Sell underperforming investments at a loss to offset gains from winners. As noted above, losses first offset gains of the same type, then up to $3,000 can offset ordinary income annually, with remaining losses carried forward. This is one of the most powerful tools for managing capital gains taxes and should be done regularly throughout the year, not just in December.

Hold for More Than One Year

Simply waiting to sell an asset until you have held it for more than one year can dramatically reduce your tax rate. For most taxpayers, the difference between short-term rates (10%–37%) and long-term rates (0%–20%) is substantial. If you are close to the one-year mark, waiting an extra day can save you thousands of dollars in taxes.

Use Tax-Advantaged Accounts

Investing through retirement accounts eliminates or defers capital gains taxes:

• 401(k) and Traditional IRA: No capital gains tax while invested; withdrawals are taxed as ordinary income. All gains within the account grow tax-deferred.
• Roth IRA and Roth 401(k): No capital gains tax at all — qualified withdrawals are completely tax-free, including all investment gains.
• HSA (Health Savings Account): Triple tax-advantaged — contributions are pre-tax, growth is tax-free, and qualified medical withdrawals are tax-free.
• 529 Plans: Earnings grow tax-free when used for qualified education expenses.

Donate Appreciated Securities

Donating appreciated stocks or mutual funds held for more than one year to a qualified charity provides a double tax benefit: you avoid paying capital gains tax on the appreciation, and you can deduct the full fair market value as a charitable contribution (up to 30% of AGI). This is significantly more tax-efficient than selling the asset, paying the gains tax, and donating the cash proceeds.

Use the Primary Residence Exclusion

If you have lived in your home for at least two of the last five years, you can exclude up to $250,000 of gain ($500,000 for married couples filing jointly) from capital gains tax. This exclusion can be used once every two years and is one of the most valuable tax breaks for homeowners.

Consider Opportunity Zones

Investing capital gains into Qualified Opportunity Funds allows you to defer and potentially reduce capital gains taxes. If the investment is held for at least 10 years, the appreciation on the Opportunity Fund investment is entirely tax-free.

Frequently Asked Questions

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