Capital Gains Tax: Short-Term vs. Long-Term Rates (2025)

A gain is only taxed when you sell

Capital gains tax applies to the profit when you sell an asset — stocks, a rental property, crypto — for more than you paid. Unrealized gains on things you still hold are not taxed. The gain is simply your sale price minus your cost basis (what you paid, plus improvements or reinvested dividends). This is set out in IRS Topic No. 409, Capital Gains and Losses.

The one-year line that changes everything

The single biggest factor is how long you held the asset. Sell within one year and the profit is a short-term gain, taxed at your ordinary income rate — up to 37%. Hold longer than a year and it becomes a long-term gain, taxed at the preferential rates of 0%, 15%, or 20%.

Long-term rates and 2025 breakpoints

Per IRS inflation guidance, for 2025 the 0% long-term rate applies to taxable income up to about $48,350 (single) or $96,700 (joint); the 15% rate covers most middle- and upper-middle incomes; and the 20% rate applies only at the highest income levels. A 3.8% Net Investment Income Tax can also apply above certain thresholds.

Using losses to your advantage

Capital losses offset capital gains dollar-for-dollar. If losses exceed gains, you can deduct up to $3,000 of net loss against ordinary income each year and carry the rest forward, as the IRS Topic No. 409, Capital Gains and Losses explains. Deliberately realizing losses to offset gains is known as tax-loss harvesting.

The home-sale exclusion

When you sell a primary residence you have owned and lived in for two of the last five years, you can exclude up to $250,000 of gain (single) or $500,000 (married filing jointly). This is one of the most valuable breaks in the code and is separate from investment gains.