A capital gains tax is imposed on the sale of an asset. The long-term capital gains tax rates for the 2025 tax year are 0%, 15%, or 20% of the profit, depending on the income of the filer.

Understanding Capital Gains Tax

The capital gains or profits are referred to as having been realized when stock shares or any other taxable investment assets are sold. The tax doesn't apply to unsold investments or unrealized capital gains. Stock shares won't incur taxes until they're sold no matter how long the shares are held or how much they increase in value.

The capital gains tax rate applies only to profits from the sale of assets held for more than a year. This is referred to as 澳洲幸运5官方开奖结果体彩网:long-term capital gains. The current rates are 0%, 15%, or 20% as of 2025 depending on the taxpayer's tax bracket for that year although gains on collectibles are taxed at 28%.

Most taxpayers pay a higher rate on their income than on any long-term capital gains they may have realized. That gives the🙈m a financial incentive to hold investments for at least a year after which the tax on the profit will be lower.

An investor will owe long-term capital gains tax on the profits of any investment they've owned for more than one year. The short-term capital gains tax applies if the investor owns the investment for one year or less. The short-term rate is determined by the taxpayer's 澳洲幸运5官方开奖结果体彩网:ordinary income bracket. That's a higher tax rate than the capital gains rate for all but the highest-paid taxpayers.

Capital Gains Tax Rates for 2025

The profit on an asset that's sold a year or less after its purchase is generally treated for tax purposes as if it were wages or salary. Such gains are added to your 澳洲幸运5官方开奖结果体彩网:earned income or ordinary income on your tax return.

The same generally applies to 澳洲幸运5官方开奖结果体彩网:dividends paid by an asset. They represent profit although they aren't capital gains. Ordinary dividends are taxed as ordinary income for taxpayers who are in the 15% and higher tax brackets. Qualified dividends are subject to the 0%, 15%, or 20% capital gains tax.

A different system applies for long-term capital gains, however. The tax you pay on assets held for more than a year and sold at a profit varies according to a rate schedule that's based on the taxpayer's taxable income for that year. The rates are adjusted annually for 澳洲幸运5官方开奖结果体彩网:inflation.

The rates for tax year 2025 are shown in this table.

Capital Gains Tax Exceptions

Some𒐪 categories of assets are subject to different capital gains tax treatment than the norm.

Collectibles

Short-term gains on 澳洲幸运5官方开奖结果体彩网:collectibles including art, antiques, jewelry, precious metals, and stamp collections are taxed as ordinary income at graduated tax rates. Long-term gains on collectibles are taxed as ordinary income but with a cap of 28%.

Owner-occupied real estate

A different standard applies to real estate capital gains if you're selling your principal residence. $250,000 of an individual's 澳洲幸运5官方开奖结果体彩网:capital gaiꦗns on the sale of a home are excluded from taxable income. This increases to $500,000 for those who are married and filing jointly. The seller must have owned and lived in the home for two years or more during the five years ending on the date of the sale to qualify for this tax break.

Capital losses from the sale of 澳洲幸运5官方开奖结果体彩网:personal property such as a home aren't deductible from gains, however.

A single taxp🌱ayer who purchased a house for $200,000 and later sells it for $500,000 has made a $300,000 profit on the sale. This individual must report a capital gain of $50,000 after applying the🧸 $250,000 exemption. This is the amount subject to the capital gains tax.

Investment real estate

Investors who own real estate can often claim depreciation deductions against income to reflect the steady deterioration of the property as it ages. This is a decline in the home's physical condition and is unrelated to its changing value in the real estate market.

The depreciation deduction effectively reduces the amount you're considered to have paid for the property. That can in turn increase your taxable capital gain if you sell because the gap between the property's value after deductions and its sale price will be greater.

You'd be taxed as if you'd paid $95,000 for the building if you paid $100,000 and you're permitted to claim $5,000 in depreciation. The $5,000 is then treated as a recapture of those depreciation deductions at the time of sale.

The tax rate that applies to the recaptured amount is 25% so there would be total capital gains of $15,000 if you then sold the building for $110,000, Then $5,000 of the sale figure would be treated as a recapture of the deduction from income. That recaptured amount is taxed at 25%. The remaining $10,000 of capital gain would be taxed at 0%, 15%, or 20% depending on the investor's income.

Investment exceptions

You may be subject to the net investment income tax if you have a high income. This tax imposes an additional 3.8% on your investment income, including your capital gains, if your modified adjusted gross income (MAGI) exceeds certain maximums.

The threshold amount is $250,000 if you're married and filing jointly or you're a surviving spouse as of 2025. It's $200,000 if you’re single or a head of household and $125,000 if you're married and filing a separate return.

Calculating Your Capital Gains

Capital losses can be deducted from capital gains to calculate your taxable gains for the year. The calculation becomes a little more complex, however, if you've incurred capital gains and capital losses on both short-term and long-term investments.

First sort short-term gains and losses in a separate pile from long-term gains and losses. All short-term gains must be reconciled to yield a total short-term gain then the short-term losses are totaled. Finally, long-term gains and losses are tallied.

The short-term gains are netted against the short-term losses to produce a net short-term gain or loss. The same is done with the long-term gains and losses.

How to Avoid Capital Gains Taxes

You'll owe capital gains tax on the profit if you want to invest money and make money. You can minimize your capital gains taxes in several ways, however.

• Hold your investment for more than one year. The profit will be treated as regular income otherwise and you'll most likely pay more.
• Don't forget that your investment losses can be deducted from your investment profits. You can claim $3,000 in losses a year. Some investors use this benefit to good effect. They'll sell a loser at the end of the year so they have losses to offset their gains for the year. You can carry the excess losses forward and deduct them from your capital gains in future years If your losses are greater than $3,000.
• Keep track of any qualifying expenses that you incur in making or maintaining your investment. They'll increase the cost basis of the investment and reduce its taxable profit.
• Be mindful of 澳洲幸运5官方开奖结果体彩网:tax-advantaged accounts. Holding securities in a 401(k) or IRA can limit the 澳洲幸运5官方开奖结果体彩网:liquidity you have in your investment and your options to withdraw funds. You may have greater capabilities in buying and selling securities without incurring taxes on gains, however.
• Seek out exclusions. Ensure that you understand the rules that allow you to exclude a portion of gains from the house sale if you want to sell your house. Be mindful to intentionally meet criteria if possible to plan the timing of the sale and ensure that you meet exclusion requirements.

Capital Gains Tax Strategies

The capital gains tax effectively reduces the ov☂erall return generate🍸d by an investment but there are legitimate ways to reduce or even eliminate net capital gains taxes for the year.

The simplest of strategies is to simply hold assets for more than a year before selling. The tax you'll pay on long-term capital gains is generally lower than it would be for short-term gains.

Use your capital losses

Capꦯital losses will offset capital gains and effectively lower your capital gains tax for the year but what if the losses are greater than the gains?

You can claim the amount against your income if your losses exceed your gains by up to $3,000. The loss rolls over so any excess loss above $3,000 that's not used in the current year can be deducted from income to reduce your tax liability in future years.

Say an🌟 investor realizes a profit of $5,000 from the sale of some stocks but incurs a loss of $20,000 from selling others. The capital loss can be used🎐 to cancel out tax liability for the $5,000 gain. The remaining capital loss of $15,000 can then be used to offset income and the tax on those earnings.

The investor whose annual investment income is $50,000 would report $50,000 minus a maximum annual claim of $3,000 in the fir🗹st year. That leav♕es a total of $47,000 in taxable income. The investor still has $12,000 in capital losses and can deduct the $3,000 maximum every year for the next four years.

Don't break the wash sale rule

Be mindful of selling stock shares at a loss to get a tax advantage and then turning around and buying the same investment again. You'll run afoul of the IRS wash sale rule against this sequence of transactions if you do it within 30 days or less.

Material capital gains of any kind are reported on a 澳洲幸运5官方开奖结果体彩网:Schedule D form.

Use tax-advantaged retirement plans

Among the many reasons to participate in a retirement plan like a 401(k) or an 澳洲幸运5官方开奖结果体彩网:indivi𒅌dual retirement account (IRA) is that your investments grow from year to year without being subject to capital gains tax. You can buy and sell within a retirement plan 🍒without pa💧ying taxes every year.

Most traditional tax-advantaged retirement plans don't require participants to pay tax on the funds until they're withdrawn from the plan. Withdrawals are taxed as ordinary income regardless of the underlying investment.

Cash in after retiring 

Consider waiting until you stop working to sell profitable assets. The capital gains tax bill might be reduced if your retirement income is lower. You may even be able to avoid having to pay capital gains tax at all.

Be mindful of the impact of taking the tax hit while you're working rather than after you've retired. Realizing the gain earlier might serve to bump you out of a low- or no-pay bracket and cause you to incur a tax bill on the gains.

Watch your holding periods

Remember that an asset must be sold more than after it was purchased for the sale to qualify for treatment as a long-term capital gain. Be sure to check the actual trade date of the purchase before you sell if you're selling a security that you bought about a year ago. You might be able to avoid its treatment as a short-term capital gain by waiting only a few days.

These timing maneuvers⛎ matter more with large trades than small ones.

Choose your basis 

Most investors use the first-in, first-out (FIFO) method to calculate the cost basis when they acquire and sell shares in the same company or mutual fund at different times. There are four other methods to choose from, however: 澳洲幸运5官方开奖结果体彩网:last in, first out (LIFO), 澳洲幸运5官方开奖结果体彩网:dollar value LIFO, 澳洲幸运5官方开奖结果体彩网:average cost, and 澳洲幸运5官方开奖结果体彩网:specific share identification. Average cost is only available for mutual fund shares.

Your best choice will depend on several factors such as the basis 🐼price of shares or units that were purchased and the amount of gain that will be declared. You may want to consult witꦑh a tax advisor for complex cases.

Computing your cost basis can be a tricky proposition. Your statements will be on its 𓆏website if you use an online broker. Be sure you have accurate records in some form in any case.

Determining when a security was purchased and at what price can be a nightmare if you've lost the original confirmation statement or other records from that time. This is especially troublesome if you have to determine exactly how much was gained or lost when you're selling a stock so be sure to keep track of your statements. You'll need those dates for the Schedule D form.

The Bottom Line

Capital gains taxes are levied on profits made from the sale of assets like stocks or 澳洲幸运5官方开奖结果体彩网:real estate. The tax is based on the holding term and the taxpayer's income level and is computed using⛦ the difference between the asset's sale price and its acquisition price. It can be subject to different rates.