Capital Gains Tax

How It Works

Capital gains tax applies to the profit (gain) realized when you sell a capital asset for more than you paid. The tax treatment depends on your holding period: assets held for one year or less generate short-term capital gains, taxed as ordinary income at your marginal rate; assets held for more than one year generate long-term capital gains, taxed at preferential rates of 0%, 15%, or 20%. For 2025, single filers pay 0% on long-term gains up to $48,350, 15% on gains from $48,350 to $533,400, and 20% on gains above $533,400. These thresholds are based on taxable income, not just the gain itself. High-income taxpayers may also owe the 3.8% Net Investment Income Tax (NIIT) on top of the capital gains rate, bringing the maximum federal rate to 23.8%. Some states also tax capital gains, with California charging up to 13.3% — meaning a California resident in the highest brackets could pay over 37% combined on long-term gains. Capital losses can offset capital gains, and up to $3,000 of net losses can offset ordinary income per year, with unused losses carrying forward. Strategic tax-loss harvesting and asset location (placing high-growth assets in tax-advantaged accounts) can significantly reduce lifetime capital gains taxes.