Long-Term Capital Gains

How It Works

Long-term capital gains receive favorable tax treatment as an incentive for long-term investment. To qualify, you must hold the asset for more than 365 days before selling. The holding period begins the day after you acquire the asset and includes the day you sell. For 2025, the federal long-term capital gains rates are 0% for single filers with taxable income up to $48,350 (or $96,700 for married filing jointly), 15% for income up to $533,400 single ($600,050 MFJ), and 20% above those thresholds. The 0% bracket is a powerful planning tool. Taxpayers in lower income years — such as early retirees, students, or those between jobs — can harvest long-term gains at zero federal tax. Even higher-income taxpayers can strategically realize gains in years when their income dips. The difference between short-term and long-term rates is substantial: a taxpayer in the 32% ordinary income bracket saves 17 percentage points by holding an investment for just one extra day past the one-year mark. Inherited assets receive a "stepped-up basis" to the fair market value at the date of death, potentially eliminating capital gains entirely. Gifts of appreciated stock transfer the donor's cost basis to the recipient, making them a tax-efficient way to give to people in lower brackets.