Profits from selling assets held for more than one year, taxed at lower rates.
Long-term capital gains are profits from selling an asset (stock, property, etc.) held for more than one year. These gains are taxed at preferential rates: 0%, 15%, or 20% depending on income level (versus ordinary income rates up to 37%). For 2024, single filers with income under $47,025 pay 0% on long-term gains; $47,025–$518,900 pay 15%; above $518,900 pay 20%. This preferential treatment incentivizes long-term investing. If you sell an asset within one year, short-term capital gains are taxed as ordinary income at your marginal rate. Strategic timing of capital gains realization—selling in years of lower income, using tax-loss harvesting, donating appreciated assets to charity—can minimize taxes.
Long-term capital gains apply to assets held for MORE THAN ONE YEAR (holding period: acquisition date + 1 day to sale date — meet or beat the one-year mark by at least one day). The gain is computed as: gain = sale_proceeds − adjusted_cost_basis − transaction_costs. Cost basis is generally the original purchase price plus commissions and reinvested dividends; for inherited assets, basis is "stepped up" to fair-market value on the date of death. For 2025 (per IRS Rev. Proc. 2024-40), the long-term capital gains brackets are: 0% bracket for single filers with taxable income up to $48,350; 15% bracket from $48,351 to $533,400; 20% bracket above $533,400. Married filing jointly: 0% up to $96,700; 15% from $96,701 to $600,050; 20% above $600,050. These brackets are STACKED ON TOP of ordinary income — meaning, you fill ordinary brackets first with wages, salary, interest, then layer capital gains on top. High-income filers may also owe the 3.8% Net Investment Income Tax (NIIT) on investment income above the MAGI threshold ($200K single, $250K MFJ — these thresholds are NOT indexed for inflation). Common mistakes: (1) counting holding period from purchase date instead of purchase date + 1 day — selling on the one-year anniversary is short-term, (2) ignoring "wash sale" rules — selling at a loss and repurchasing within 30 days disallows the loss for tax purposes (the disallowed loss is added to the new basis), (3) forgetting reinvested dividends are part of cost basis — failing to add them OVERSTATES your taxable gain, (4) missing the 0% bracket — retirees with low taxable income can sometimes realize gains in the 0% bracket and reset basis, (5) ignoring state taxes — most states tax capital gains as ordinary income, with no preferential rate. For collectibles (art, coins) and Section 1250 real-estate recapture, the maximum LTCG rate is 28% or 25% respectively rather than 20%.
2025 long-term capital gains 0% threshold raised to $48,350 (single) and $96,700 (MFJ) per IRS Rev. Proc. 2024-40.
2025 long-term capital gains 20% threshold raised to $533,400 (single) and $600,050 (MFJ).
Net Investment Income Tax (NIIT) of 3.8% added on top of LTCG for high earners (MAGI above $200K single / $250K MFJ). NIIT thresholds are NOT indexed for inflation.
Per IRS Rev. Proc. 2024-40 (the 2025 tax inflation adjustments), single filers pay 0% on long-term gains up to $48,350 taxable income, 15% from $48,351 to $533,400, and 20% above $533,400. Married filing jointly: 0% up to $96,700, 15% from $96,701 to $600,050, 20% above $600,050. These brackets stack on top of ordinary income — wages and salary fill ordinary brackets first, then capital gains are layered on top. High earners may additionally owe the 3.8% Net Investment Income Tax (NIIT) on investment income above $200K MAGI (single) or $250K (MFJ).
More than ONE YEAR. Per IRS Topic 409, the holding period begins the day AFTER you acquire the asset and ends on the day you sell it. To qualify for long-term treatment, the holding period must EXCEED one year — selling on the one-year anniversary date itself produces a SHORT-term gain. Inherited property is automatically considered long-term regardless of how long the heir actually held it. Gifted property carries over the donor's holding period.
Short-term capital gains apply to assets held ONE YEAR OR LESS and are taxed at your ORDINARY income tax rate — up to 37% federal in 2025. Long-term capital gains apply to assets held MORE THAN ONE YEAR and qualify for preferential rates of 0%, 15%, or 20% depending on income. The rate difference can be material — for a high-income filer in the 37% ordinary bracket, holding an additional day to cross the one-year threshold can drop the tax rate from 37% to 20%. Both are reported on Form 8949 and Schedule D.
For most taxable assets (stocks, ETFs, mutual funds, crypto), simply reinvesting the sale proceeds does NOT defer or avoid the tax — the sale is a taxable event regardless of what you do with the proceeds. Exceptions exist for specific transactions: Section 1031 like-kind exchanges (real estate only, since the TCJA), Qualified Opportunity Zone investments (defers and partially excludes gains), and certain Section 1202 Qualified Small Business Stock exclusions. Tax-advantaged accounts (IRA, 401(k), HSA) shelter all internal trading from capital-gains tax, so reinvestment inside them has no current-year tax impact.
Tax-loss harvesting is selling investments at a loss to OFFSET capital gains realized elsewhere. Realized losses first offset realized gains of the same character (short vs long). Any net loss after offsetting can offset up to $3,000 of ordinary income per year ($1,500 if married filing separately), with excess carried forward indefinitely. The IRS "wash sale" rule disallows the loss if you buy a "substantially identical" security within 30 days BEFORE or AFTER the sale — the disallowed loss is added to the new position's basis. See IRS Publication 550 for full rules. CalcFi's capital-gains calculator can model the offset; consult a tax professional for advanced strategies.
Single filers with taxable income up to $48,350 (2025) pay ZERO federal tax on long-term capital gains. This is a powerful but underused planning bracket. Strategies that use it: realizing gains in a sabbatical or early-retirement year before Social Security starts, converting Traditional to Roth in the same low-income year, harvesting GAINS (not just losses) to step up cost basis without tax. Note: capital gains stack on top of ordinary income, so wages and interest fill ordinary brackets first. If ordinary income alone is below the 0% threshold, capital gains "use up" the remaining 0% space first, then spill into the 15% bracket once they exceed it.
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