Understanding Capital Gains Taxes: What You Need to Know

If you have investments or frequently sell assets, it's crucial to understand the potential tax consequences.

What are Capital Gains?

Most things people own are considered capital assets. This includes investments like stocks, bonds, cryptocurrency, and real estate, as well as personal property such as cars or boats.

When you sell a capital asset for more than its original purchase price, the profit you make is called a capital gain. Conversely, if you sell an asset for less than what you paid for it, the resulting loss is a capital loss.

The difference between your capital gains and losses determines your net capital profit. For example, if you made a $10,000 profit from selling a stock and incurred a $4,000 loss on another, your net capital gain would be $6,000.

What is Capital Gains Tax?

Capital gains taxes are owed on profits made from the sale of assets. How much you pay depends on what you sold, how long you owned it before selling, your taxable income and your filing status.

Capital gains can be subject to either short-term tax rates or long-term tax rates. Short-term capital gains are treated as regular income and taxed according to ordinary income tax brackets. Long-term capital gains are taxed at 0%, 15%, or 20%.

Some exceptions:

• High-earning individuals may also need to account for the net investment income tax (NIIT), an additional 3.8% tax that can be triggered if your income exceeds a certain limit.

• Long-term capital gains on so-called “collectible assets” can be taxed at a maximum of 28%. This includes items such as coins, precious metals, antiques and fine art. Short-term gains on such assets are taxed at the ordinary income tax rate

Long-Term Capital Gains Tax

Profits from the sale of an asset held for more than a year are subject to long-term capital gains tax. The rates are 0%, 15% or 20%, depending on taxable income and filing status. Per the IRS, most people pay no more than 15%.

Short-Term Capital Gains Tax

Short-term capital gains tax is a tax on profits from the sale of an asset held for one year or less. Short-term capital gains are taxed according to your ordinary income tax bracket: 10%, 12%, 22%, 24%, 32%, 35% or 37%.

2024 Capital Gains Tax Rate The following rates and brackets apply to long-term capital gains sold in 2024, which are reported on taxes filed in 2025.

2025 Capital Gains Tax Rate

The following rates and brackets apply to long-term capital gains sold in 2025, which are reported on taxes filed in 2026.