Long-Term Capital Gains Tax Rates 2024-2025
Understand long-term capital gains tax rates and how they impact your investment profits.
Understanding Long-Term Capital Gains Tax
When you sell an investment for a profit, the IRS considers that gain as taxable income. However, the tax treatment depends significantly on how long you held the asset. Long-term capital gains, which apply to assets held for more than one year, receive preferential tax treatment compared to short-term gains. This distinction creates a major incentive for investors to hold their positions longer and can substantially impact your overall tax liability.
Long-term capital gains are taxed at significantly lower rates than ordinary income. In fact, the IRS offers three possible tax rates: 0 percent, 15 percent, and 20 percent, depending on your total taxable income and filing status. These rates remain the same for both the 2024 and 2025 tax years, though income thresholds are adjusted annually for inflation.
What Are Capital Gains?
Capital gains represent the profit you make when you sell an investment or asset for more than you paid for it. For example, if you purchase a stock for $1,000 and sell it later for $1,300, your capital gain is $300. However, it’s important to understand that you only owe taxes on realized gains — those from sales you’ve actually completed. Unrealized gains, which are the profits you’d make if you sold today but haven’t actually sold, are not currently taxed.
The IRS categorizes capital gains into two distinct categories: short-term and long-term. The holding period is the determining factor. Assets held for one year or less generate short-term capital gains, while assets held for longer than one year produce long-term capital gains.
Long-Term vs. Short-Term Capital Gains
The difference between long-term and short-term capital gains tax treatment is substantial. Short-term capital gains are taxed at your ordinary income tax rates, which range from 10 percent to 37 percent in 2024 and 2025. These rates can be significantly higher than long-term rates.
For example, if you hold a stock for less than a year and sell it for a $700 gain, and your ordinary income tax bracket is 24 percent, you’d owe $168 in taxes on that gain. However, if you hold the same stock for slightly longer than one year and achieve the same $700 gain, your tax obligation could be as low as $105 (at the 15 percent long-term rate), saving you $63.
This preferential treatment of long-term capital gains reflects tax policy designed to encourage longer-term investing and reward patient investors.
2024 Long-Term Capital Gains Tax Rates and Brackets
For the 2024 tax year, the long-term capital gains tax structure remains consistent with previous years, offering three tax rates based on income level:
| Filing Status | 0% Rate | 15% Rate | 20% Rate |
|---|---|---|---|
| Single | Up to $47,025 | $47,026 – $518,900 | Over $518,900 |
| Married Filing Jointly | Up to $94,050 | $94,051 – $583,750 | Over $583,750 |
| Married Filing Separately | Up to $47,025 | $47,026 – $291,850 | Over $291,850 |
| Head of Household | Up to $63,000 | $63,001 – $551,350 | Over $551,350 |
Individual filers won’t pay any capital gains tax if their total taxable income is $47,025 or below. Those earning between $47,026 and $518,900 pay 15 percent on capital gains. Any income above $518,900 is subject to the 20 percent long-term capital gains tax rate.
2025 Long-Term Capital Gains Tax Rates and Brackets
For the 2025 tax year, income thresholds have been adjusted upward for inflation, allowing more taxpayers to potentially benefit from lower tax rates:
| Filing Status | 0% Rate | 15% Rate | 20% Rate |
|---|---|---|---|
| Single | Up to $48,350 | $48,351 – $533,400 | Over $533,400 |
| Married Filing Jointly | Up to $96,700 | $96,701 – $600,050 | Over $600,050 |
| Married Filing Separately | Up to $48,350 | $48,351 – $300,000 | Over $300,000 |
| Head of Household | Up to $64,750 | $64,751 – $566,700 | Over $566,700 |
For single filers in 2025, the 0 percent rate threshold increased to $48,350, a meaningful increase from 2024’s $47,025. This adjustment reflects the annual inflation adjustment to tax brackets. Married filing jointly taxpayers can now realize up to $96,700 in long-term capital gains at the 0 percent rate, compared to $94,050 in 2024.
Understanding the 0% Long-Term Capital Gains Rate
One of the most valuable but often overlooked aspects of the tax code is the ability to realize long-term capital gains at a 0 percent tax rate. This opportunity allows qualifying taxpayers to sell appreciated investments and keep all the profits without federal income tax consequences.
To take advantage of this rate, your total taxable income must fall within the specified thresholds. This means you can combine your regular income (wages, salary, business income) with your long-term capital gains without triggering taxation, as long as the combined amount stays below the 0 percent bracket threshold.
For example, a single filer earning $20,000 from a job could realize up to $28,350 in long-term capital gains in 2025 and still pay 0 percent tax on those gains. This strategy is particularly valuable for early retirees, those with irregular income, or individuals in transition years where their income is temporarily lower.
The Net Investment Income Tax (NIIT)
In addition to regular capital gains taxes, those with higher income may face an additional 3.8 percent net investment income tax (NIIT). This tax applies to taxpayers whose income exceeds certain thresholds, which vary based on filing status. Unlike the regular capital gains tax brackets, NIIT thresholds are not adjusted annually for inflation, so they remain constant unless changed by legislation.
The NIIT functions as an additional layer of taxation on investment income for higher-income earners. When combined with the regular 20 percent long-term capital gains rate, the effective tax rate on long-term capital gains can reach 23.8 percent for the highest earners.
How Income Affects Your Capital Gains Tax Rate
Your total taxable income determines which capital gains bracket you fall into. This includes not just your long-term capital gains, but also wages, salaries, interest income, dividends, and other income sources. Understanding how your total income picture affects your capital gains taxation is crucial for tax planning.
Consider this scenario: If your ordinary income is $50,000 and you realize $700 in long-term capital gains, your total taxable income becomes $50,700. Depending on your filing status, this likely places you in the 15 percent long-term capital gains bracket. You would owe $105 in federal income tax on the capital gain, keeping $595 as net profit.
However, if your ordinary income were $20,000 instead, the same $700 gain might be entirely taxed at the 0 percent rate, allowing you to keep the full $700 profit. This demonstrates the significant impact total income has on your effective tax rate.
Short-Term Capital Gains Tax Rates
While long-term capital gains receive preferential treatment, short-term capital gains are taxed at your ordinary income tax rate. The 2024-2025 ordinary income tax brackets are 10 percent, 12 percent, 22 percent, 24 percent, 32 percent, 35 percent, and 37 percent.
Short-term capital gains represent profits from assets held for one year or less. If you actively trade stocks or frequently buy and sell investments, any gains are likely subject to these higher rates. The difference between short-term and long-term treatment can be substantial — a $1,000 gain taxed at 37 percent results in $370 owed in taxes, compared to potentially $200 at the 20 percent long-term rate for the same gain.
Calculating Net Capital Gains
The IRS focuses on your net capital gain for the year, which is the difference between your total capital gains and total capital losses. If you sell both winning and losing investments during the year, you can offset gains with losses, potentially reducing or eliminating your capital gains tax obligation.
For instance, if you realize $5,000 in long-term capital gains but also recognize $3,000 in capital losses, your net long-term capital gain is only $2,000. This netting process applies separately to long-term and short-term transactions, though you can use excess losses from one category to offset gains in the other.
Capital Gains Tax on Real Estate
Capital gains taxation applies not just to stocks and investments, but also to real estate transactions. When you sell a home or investment property for more than you paid for it, the profit is subject to long-term capital gains tax if you held the property for more than one year.
However, there’s an important exception for primary residences. If you’re selling a home where you lived for at least two of the last five years, you may exclude up to $250,000 (single filers) or $500,000 (married filing jointly) of capital gains from taxation. This exclusion can make home sales completely tax-free for many homeowners.
Frequently Asked Questions
Q: What is the difference between realized and unrealized capital gains?
A: Realized capital gains are profits from assets you have actually sold. Unrealized capital gains are the profits you would make if you sold today but haven’t actually sold yet. Only realized capital gains trigger tax obligations.
Q: Can I use capital losses to offset capital gains?
A: Yes. The IRS allows you to offset capital gains with capital losses. If your losses exceed your gains, you can use up to $3,000 of net losses annually to reduce ordinary income, with excess losses carried forward to future years.
Q: How long must I hold an asset to qualify for long-term capital gains rates?
A: You must hold the asset for more than one year. Specifically, if you sell on the same date you purchased the previous year, it still qualifies as long-term. The holding period begins the day after you purchase and includes the day you sell.
Q: Will the long-term capital gains rates change after 2025?
A: The current long-term capital gains rates are permanent tax law. However, they may change if Congress passes new legislation. Some tax provisions are scheduled to potentially expire after 2025 unless extended, though this would require legislative action.
Q: Do I pay capital gains tax on dividend income?
A: Qualified dividends from stocks you’ve held for specific periods are generally taxed at long-term capital gains rates. Non-qualified dividends are taxed at ordinary income rates. The distinction depends on the type of dividend and holding period.
Q: How does the 0% capital gains rate work if my total income is high?
A: The 0% rate applies to long-term capital gains if your total taxable income (including those gains) stays below the specified threshold for your filing status. Once you exceed the threshold, additional gains are taxed at 15% or 20%.
References
- Topic no. 409, Capital gains and losses — Internal Revenue Service. 2024. https://www.irs.gov/taxtopics/tc409
- 2024-2025 Long-Term Capital Gains Tax Rates — Bankrate. 2024. https://www.bankrate.com/investing/long-term-capital-gains-tax/
- Capital Gains Tax Rates 2025 and 2026: What You Need to Know — Kiplinger. 2024. https://www.kiplinger.com/taxes/capital-gains-tax/602224/capital-gains-tax-rates
- Short-term vs. long-term capital gains: How to trim your tax bill — Bankrate. 2024. https://www.bankrate.com/taxes/short-term-vs-long-term-capital-gains-how-to-trim-your-tax-bill/
- A Guide to the Capital Gains Tax Rate: Short-term vs. Long-term Capital Gains Taxes — TurboTax. 2024. https://turbotax.intuit.com/tax-tips/investments-and-taxes/guide-to-short-term-vs-long-term-capital-gains-taxes-brokerage-accounts-etc/
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