Updated for tax year 2025.
Did you profit from selling a house, some investments, or even a car this year? If so, you’ll likely need to report the sale on your income tax return due to long-term capital gains taxes, which can increase your overall tax liability.
Fortunately, if your sale qualifies as a long-term capital gain, the taxes are less than what you’d pay on your ordinary income, such as wages (which can help reduce your overall tax bill).
At a glance:
- Long-term capital gains tax is lower than ordinary income tax.
- You must own the asset for more than one year to qualify for long-term capital gains.
- Tax rates on long-term gains range from 0% to 20%, depending on income.
What are long-term capital gains?
To qualify as a long-term gain, you must own a capital asset — such as a house, investment, or car — for longer than one year. Once you’re past the one-year mark, you generally qualify for the special long-term gain tax rates under current tax laws.
Meanwhile, a short-term capital gain includes the profits of an item you sold that you owned for one year or less. Short-term capital gains tax rates are the same as your ordinary income tax rate. Long-term gains are typically taxed at a lower rate, so exceeding the one-year holding period before selling certain assets may sometimes save you money on taxes.
How to calculate long-term capital gains tax
Most things you own, such as your car, investments, and real estate, are capital assets. And when you sell those assets, it creates a capital gain or loss that you’ll typically report on Schedule D of your tax return.
Long-term capital gains occur when:
- You sell an asset, and the sale price exceeds your purchase price (cost basis).
- You kept the asset for longer than one year.
You do not owe taxes on assets you sold at a loss. However, you can use losses to offset taxable income from capital gains. You must first apply losses to gains of the same type. For example, long-term losses must first offset long-term gains. Any remaining losses can then offset the other type.
Note: Gains on certain types of assets (such as collectibles, qualified small business stock, or property for which you have taken depreciation deductions) are subject to their own special rules. For instance, long-term capital gains on collectible assets can be taxed at a maximum rate of 28%.
What is the long-term capital gains tax rate?
As a taxpayer, you can pay anywhere from 0% to 20% tax on your long-term capital gain, depending on your income level and tax filing status. Additionally, capital gains are subject to the net investment income tax (NIIT) of 3.8% when the income is above certain amounts, and may also be impacted by state taxes depending on where you live.
Since long-term gains are taxed differently from short-term gains (which are taxed as regular income), the long-term capital gain tax brackets are different from ordinary federal income tax brackets. Check out the 2025 long-term gain tax rates below.
Long-term capital gains tax rates 2025
Long-term capital gains rates are based on your total taxable income, including your ordinary income. The long-term capital gains tax brackets for 2025 are:
| Tax rate | Single | Married filing jointly | Married filing separately | Head of household |
|---|---|---|---|---|
| 0% | $0 to $48,350 | $0 to $96,700 | $0 to $48,350 | $0 to $64,750 |
| 15% | $48,351 to $533,400 | $96,701 to $600,050 | $48,351 to $300,000 | $64,751 to $566,700 |
| 20% | $533,401 or more | $600,051 or more | $300,001 or more | $566,701 or more |
Example: Say you bought ABC stock on March 1, 2010, for $10,000. On May 1, 2023, you sold all the stock for $20,000 (after selling expenses). You now have a $10,000 capital gain ($20,000 – 10,000 = $10,000).
If you’re single and your income is $65,000 for 2025, you would be in the 15% capital gains tax bracket. In this example, you pay $1,500 in capital gains tax ($10,000 x 15% = $1,500). That amount is in addition to the tax on your ordinary income.
Are there exceptions to paying taxes on long-term gains?
One common exception (and one of the more valuable tax breaks) applies to the sale of a primary residence. You may not have to pay tax on a gain of up to $250,000 from the sale of your home. That rule applies if you have owned and lived in the house for at least two of the last five years or if you meet certain exceptions.
If you’re married, you can exclude up to $500,000 in gain from the sale of your home if you meet the IRS requirements. We discuss the requirements for this further in 5 Tax Tips for Homeowners.
Do I have to pay the additional tax on net investment income?
You may have to pay an additional 3.8% tax on net investment income.
This tax has to be paid if your modified adjusted gross income (MAGI) is $200,000 or more ($250,000 if filing jointly or qualifying surviving spouse, and $125,000 if married filing separately). You may be able to reduce your investment income by deducting expenses such as investment interest, advisory fees, brokerage fees, and certain rental or royalty expenses.
The 3.8% tax applies to investment income, such as interest, dividends, capital gains, rental income, royalties, and certain annuity withdrawals. It’s paid in addition to the tax you already pay on investment income.
What should you know before you sell?
If you’re considering selling assets, such as stock, it’s best to plan ahead as part of your overall financial planning and investment decisions. A little planning now can save you a lot of capital gains tax when you file your return.
Consider these options:
- Don’t sell before the profit qualifies as long-term. Plan the sale of an asset that’s increased in value to be a long-term gain. Ensure you hold the investment long enough to qualify for long-term status. For most assets, that’s more than one year. But don’t be too quick to sell right at the one-year mark. The IRS guides say you must own the asset for “more than one year.” If it’s exactly one year when you sell, there’s a good chance they could classify it as a short-term sale.
- Don’t hang on to losing investments just to avoid taking a loss. Consider selling assets at a loss to offset capital gains — a strategy commonly known as tax-loss harvesting. The IRS only taxes your net capital gain, and you can reduce your gains by deducting your capital losses. You can even deduct up to $3,000 in capital losses from your ordinary income if your losses exceed your capital gains, with additional losses carried forward to future years.
- Owing taxes isn’t always a bad thing. Keep in mind that paying some tax may still be better than holding an investment that isn’t performing well.
- Give stock that has gone up in value to charity. Donating stock to charity gives you a tax deduction for the amount it’s worth now. Also, you don’t have to pay capital gains tax on it, effectively making the transfer tax-free.
- Don’t sell all at once. Even if you’re not normally in the higher income tax bracket, one large sale can place you there for the year if you’re not careful. You might want to sell some stock one year and wait until January to sell some more.
- Take the proceeds as an installment sale. If you have real estate you’ve been holding for 30 years, don’t let the sale bump you into the top tax bracket in the year of the sale. Consider making an installment sale. Besides saving taxes, you’ll create a steady flow of income for yourself.
- Plan for a 1031 exchange. If you sell an asset and purchase a “like-kind” property, you may qualify to put off paying tax on the gain from the first property. The idea behind this rule is that you don’t realize a gain when you sell one asset to buy another. Note that as of 2018, only “real property” (real estate) qualifies for this type of exchange — personal property does not.
- Look for other ways to reduce your income tax bracket in the year of the sale. If you’re selling a substantial capital asset for a profit, that may be a good year to sell a different asset at a loss, contribute more to charity or a tax-deferred retirement account (like a traditional IRA), invest in your business, or take other tax-saving steps.
- Buy and hold. The simplest way to put off paying taxes on capital assets is to hang on to them. Perhaps the capital gain rate will come down, or you may be in a lower tax bracket in a later year, such as after you retire. In any case, you can let your investments continue to grow by simply leaving them be.
FAQs
The bottom line
Reporting your capital gains this year doesn’t have to be complicated or stressful. With TaxAct®, you can easily share your income and investment details and determine whether the sale qualifies as a long-term gain, based on when the asset was acquired and sold.
If you’re reporting long-term capital gains this tax season, you don’t need to be a tax professional to report them accurately. Let TaxAct help you determine what you owe so that you can file confidently this year.
This article is for informational purposes only and not legal or financial advice.
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