Capital gains tax applies when a taxpayer sells or exchanges a capital asset for more than its cost basis. Common capital assets include stocks, investment property, personal-use property, and real estate.
The taxable amount depends on:
- Asset type
- Holding period
- Available exclusions or offsets
Types of Capital Gains
| Type | Holding Period | Taxed As |
|---|---|---|
| Short-Term | Held 1 year or less | Ordinary income (same as wages) |
| Long-Term | Held more than 1 year | Preferential rates (0%, 15%, or 20%) |
Tax Rates for Long-Term Capital Gains (2024)
| Filing Status | 0% Rate Up To | 15% Rate | 20% Rate Begins At |
|---|---|---|---|
| Single | $44,625 | $44,626–$492,300 | > $492,300 |
| MFJ | $89,250 | $89,251–$553,850 | > $553,850 |
| HOH | $59,750 | $59,751–$523,050 | > $523,050 |
Short‑term capital gains are taxed at the taxpayer’s regular income tax rates, while long‑term gains may qualify for reduced rates.
These income thresholds are adjusted annually for inflation and apply to tax year 2025 returns filed in 2026.
Note: An additional 3.8% Net Investment Income Tax (NIIT) may apply if modified adjusted gross income exceeds:
- $200,000 (Single / HOH)
- $250,000 (MFJ)
- $125,000 (MFS)
Example: Short-Term vs. Long-Term Capital Gains
Let’s say Christina sells stock for a $10,000 profit.
Scenario A: Short-Term Gain
- Held for 6 months
- Taxed as ordinary income
- Christina’s marginal tax rate: 24%
- Tax owed: $10,000 × 24% = $2,400
Scenario B: Long-Term Gain
- Held for 18 months
- Taxed at 15% (assuming income falls in that bracket)
- Tax owed: $10,000 × 15% = $1,500
Savings: $900 by holding the asset longer than one year
Special Considerations
- Real estate: Gains on the sale of a primary residence may qualify for an exclusion of up to $250,000 (single) or $500,000 (MFJ) if ownership and use tests are met.
- Collectibles: Long‑term gains on collectibles (art, coins, precious metals, certain ETFs) are taxed at ordinary rates up to a maximum of 28%, not the standard 0%/15%/20% rates.
- Depreciation recapture:
Applies to real estate and business property. The portion of gain related to depreciation may be taxed at:- Up to 25% for unrecaptured Section 1250 gain (real estate)
- Ordinary income rates for Section 1245 property