Capital Gains
Capital gains are the profit earned when a capital asset is sold for more than its original purchase price. Capital assets include stocks, bonds, real estate, mutual funds, and other investments. Essentially, capital gain is the increase in the value of an asset over time that is realized upon its sale.
At this point, it is important to note the difference between unrealized and realized gains. Unrealized capital gains are the increase in the value of an asset—such as stocks, real estate, or other investments—that has not yet been sold. The value of these gains can change as the market price fluctuates. Any gains exist only on paper since the asset has not been sold. Therefore, unrealized gains are not taxed. Investors may hold on to assets with unrealized gains to take advantage of potential long-term capital gains tax rates.
Realized Capital Gains occur when a capital asset—such as stocks, real estate, or other investments— is sold for more than the original purchase price (also known as the cost basis). The key factor is that the gain is “realized” only when the asset is sold, not when its value increases while still owned. Once realized, the capital gain becomes a taxable event, subject to short-term or long-term capital gains tax depending on how long the asset was held before the sale. The gain is calculated as the difference between the sale price and the asset’s cost basis, which includes the purchase price plus any associated costs like fees or improvements (for property). For example, if a stock is bought for $1,000 and later sold for $1,500, the $500 profit is a capital gain.
Capital Gain Taxes
Capital gain taxes are divided into short-term and long-term capital gains. Short-term capital gains are taxed as ordinary income, meaning they are added to the taxpayer’s other sources of income and are subject to the same tax rates as these different sources, including wages. These rates vary, from 10% to 37%, depending on the taxpayer’s income level, tax bracket, and filing status (e.g., single, married filing jointly, and head of household.)
Long-term capital gains are profits earned from selling a capital asset (e.g., stocks, bonds, real estate (not your primary residence), mutual funds, and other investments) that has been held for more than one year. These gains benefit from preferential tax rates, which are generally lower than ordinary income tax rates applied to short-term capital gains. These gains are taxed at rates of 0%, 15%, or 20%, depending on taxable income and filing status. These tax rates are lower than the rates for short-term gains, which are taxed as regular income. In addition, homeowners may exclude up to $250,000 (single) or $500,000 (married filing jointly) of gains from the sale of a primary residence if they meet the ownership and use tests.
In addition to the short-term and long-term capital gains tax rates. there is a net investment income tax (NIIT) rate of 3.8% on modified adjusted gross income (MAGI) that exceeds $200,000 for single filers and $250,000 for married couples filing jointly. This tax is in addition to short-term state taxes. Also taxed are gains from collectibles (e.g., art, coins) are taxed at a higher maximum rate of 28%.
New Tax Threshold On Capital Gains
Capital gains tax thresholds determine how much tax is owed on the profit from selling an asset. These thresholds vary depending on the type of gain (short-term or long-term), income, and filing status. Short-term capital gains, included in a taxpayer’s taxable income, are taxed as ordinary income, based on the taxpayer’s income tax bracket. As a reminder, these brackets for 2025 are as follows:
- 10% for incomes up to $11,925 (or $23,850 for married couples filing jointly)
- 12% for incomes between $11,926 and $48,475 (or $23,851 and $96,950 for married couples filing jointly)
- 22% for incomes between $48,476 and $103,350 (or $96,951 and $206,700 for married couples filing jointly)
- 24% for incomes between $103,351 and $197,300 (or $206,701 and $394,600 for married couples filing jointly)
- 32% for incomes between $197,301 and $250,525 (or $394,601 and $501,050 for married couples filing jointly)
- 35% for incomes between $250,526 and $626,350 (or $501,051 and $751,600 for married couples filing jointly)
- 37% for incomes over $626,350 (or over $751,600 for married couples filing jointly)
Long-term capital gains tax thresholds differ from those assigned to short-term capital gains. Single filers, married filing jointly, and heads of households with incomes up to $47,025, $94,050, and $63,000 respectively pay 0 taxes; single filers, married filing jointly, and heads of households with incomes between $$47,026–$518,900, $94,051–$583,750, and $63,001–$551,350 respectively pay 15% tax rate; and single filers, married filing jointly, and heads of households with incomes above $518,900, $583,750, and $551,350 respectively pay a 20% tax rate.
Comparison With 2023-2024 Tax Season
| Tax Type | Filing Status | 2023/2024 Thresholds | 2024/2025 Thresholds |
| Short-Term Gains | All Filing Statuses | Taxed as ordinary income (10%–37%) | Taxed as ordinary income (10%–37%) |
| Long-Term Gains | Single | 0%: Up to $44,625 | 0%: Up to $47,025 |
| 15%: $44,626–$492,300 | 15%: $47,026–$518,900 | ||
| 20%: Above $492,300 | 20%: Above $518,900 | ||
| Married Filing Jointly | 0%: Up to $89,250 | 0%: Up to $94,050 | |
| 15%: $89,251–$553,850 | 15%: $94,051–$583,750 | ||
| 20%: Above $553,850 | 20%: Above $583,750 | ||
| Head of Household | 0%: Up to $59,750 | 0%: Up to $63,000 | |
| 15%: $59,751–$523,050 | 15%: $63,001–$551,350 | ||
| 20%: Above $523,050 | 20%: Above $551,350 |
Conclusion
Capital gains are profits from selling assets like stocks, real estate, or mutual funds for more than their purchase price. Unrealized gains remain untaxed until the asset is sold, while realized gains occur upon sale. Taxes on capital gains are classified as short-term (assets held for one year or less, taxed as ordinary income) or long-term (assets held for over a year, taxed at preferential rates). Long-term capital gains tax thresholds in 2025 vary by filing status: 0% for incomes up to $47,025 (single), $94,050 (married filing jointly), and $63,000 (head of household); 15% for incomes between $47,026–$518,900, $94,051–$583,750, and $63,001–$551,350; and 20% for incomes above $518,900, $583,750, and $551,350. Tax thresholds determine how much is owed, incentivizing long-term investments with lower rates.
Notes
- The capital gains tax thresholds increased by approximately 2.8% across all brackets to reflect inflation.
- Short-term gains are taxed as ordinary income, so the thresholds align with income tax brackets, which remain unchanged for 2024/2025.
- These adjustments allow taxpayers to realize slightly more income at lower tax rates compared to the previous year.
Other Sources
Capital Gains
Section 1221.– Capital Asset Defined: https://www.irs.gov/pub/irs-drop/rr-07-37.pdf
1222. Other terms relating to capital gains and losses: https://www.govinfo.gov/content/pkg/USCODE-1998-title26/pdf/USCODE-1998-title26-chap1-subchapP-partIII-sec1222.pdf
Section 121.—Exclusion of gain from sale of principal residence: https://www.irs.gov/pub/irs-drop/rr-14-02.pdf
Topic no. 409, Capital gains and losses: https://www.irs.gov/taxtopics/tc409
What are Capital Gains? https://youtu.be/S3zRtmh5Gn0
Capital Gains Taxes Explained: Short-Term Capital Gains vs. Long-Term Capital Gains: https://youtu.be/TLFG1_jFQ_Y
IRS TAX TIP 2003-29 CAPITAL GAINS AND LOSSES: https://www.irs.gov/pub/irs-news/at-03-29.pdf
Short Term Capital Gains Tax Explained For Beginners: https://youtu.be/AzwN_xKLEn4
Long Term Capital Gains Tax Explained For Beginners: https://youtu.be/_1VkXej7pms?list=TLPQMTEwMzIwMjUve3OqnRPnSQ
Definition of adjusted gross income: https://www.irs.gov/e-file-providers/definition-of-adjusted-gross-income
Realized Gains
The Relationship Between Realized Income and Wealth: https://www.irs.gov/pub/irs-soi/13pwcrealwealth.pdf
Related Taxes
Topic no. 559, Net investment income tax: https://www.irs.gov/taxtopics/tc559
NET INVESTMENT INCOME TAX explained with examples: https://youtu.be/NE3_pJMEWqU
What is Net Investment Income Tax: https://youtu.be/q9WpkT2Sjws
Collectibles
Issue Snapshot – Investments in collectibles in individually directed qualified plan accounts: https://www.irs.gov/retirement-plans/investments-in-collectibles-in-individually-directed-qualified-plan-accounts
Can you get rich investing in collectibles? Tips / Advice: https://youtu.be/9Kmn-AlFkF8
Investing in Collectibles: Reacting to “8 Best Collectible Investments & How to Invest!”: https://youtu.be/I8zLTpPlG_Y
Investing in Collectibles: Behavioral Finance & Collectible Investments: A Detailed Book Review! https://youtu.be/TqxxdlndXgg
Crypto
Crypto Taxes Explained For Beginners | Cryptocurrency Taxes: https://youtu.be/d8kGs_UNBWU
WAIT Before You Cash Out Your Crypto MILLIONS! Save Big on Capital Gains Taxes: https://youtu.be/wIbOs6eEgJQ
How to Minimize Taxes on Crypto Legally when You Cash OUT [wealth lawyer explains]: https://youtu.be/Q4Yky62v87c
Legislation and Regulations
TITLE 26-INTERNAL REVENUE CODE: https://uscode.house.gov/browse/prelim@title26&edition=prelim
Tax Cuts and Jobs Act (TCJA): https://www.congress.gov/115/statute/STATUTE-131/STATUTE-131-Pg2054.pdf
“Patient Protection and Affordable Care Act”: https://www.congress.gov/111/plaws/publ148/PLAW-111publ148.pdf
