Capital Gains Tax: Short-Term vs. Long-Term Rates Explained (2025)
What Is a Capital Gain?
A capital gain is the profit you realize when you sell a capital asset — stocks, bonds, mutual funds, real estate, or other investments — for more than you paid for it (your cost basis). How that gain is taxed depends almost entirely on one factor: how long you held the asset.
Short-Term vs. Long-Term: The One-Year Rule
| Holding Period | Classification | Tax Treatment |
|---|---|---|
| 1 year or less | Short-term | Taxed as ordinary income (10%–37%) |
| More than 1 year | Long-term | Taxed at preferential rates (0%, 15%, or 20%) |
The holding period begins the day after you acquire the asset and ends on the day you sell it.
2025 Long-Term Capital Gains Rates (Single Filers)
| Rate | Taxable Income Threshold |
|---|---|
| 0% | Up to $48,350 |
| 15% | $48,350 – $533,400 |
| 20% | Over $533,400 |
These thresholds apply to taxable income, which includes your ordinary income plus your capital gains, reduced by deductions. The long-term gain itself is stacked on top of ordinary income for purposes of determining which rate applies.
2025 Short-Term Capital Gains
Short-term gains are added to your ordinary income and taxed at your regular federal income tax bracket rate. For single filers in 2025, those rates run from 10% to 37%.
Worked Example: $20,000 Gain with $60,000 in Other Income
Suppose you are a single filer with $60,000 in ordinary income (wages, after standard deduction) and you sell stock for a $20,000 gain.
Scenario A: Long-Term Gain (held > 1 year)
Your taxable ordinary income of $60,000 sits in the 22% bracket. Your long-term gains are stacked on top:
- Ordinary income: $60,000 (marginal bracket: 22%)
- Long-term gain: $20,000
- Total taxable income: $80,000
Since $60,000 + $20,000 = $80,000, and the 15% long-term rate threshold is $48,350, the entire $20,000 gain falls within the 15% long-term rate band.
Capital gains tax: $20,000 × 15% = $3,000
Scenario B: Short-Term Gain (held ≤ 1 year)
The $20,000 is added to ordinary income and taxed at the marginal rate of 22%.
Capital gains tax: $20,000 × 22% = $4,400
The long-term rate saves $1,400 in this example — a direct reward for patient, buy-and-hold investing.
Net Investment Income Tax (NIIT)
High-income taxpayers face an additional 3.8% Net Investment Income Tax on top of the regular capital gains rates. The NIIT applies to:
- Net capital gains
- Dividends and interest
- Passive rental income
It kicks in when your modified adjusted gross income (MAGI) exceeds:
| Filing Status | MAGI Threshold |
|---|---|
| Single | $200,000 |
| Married Filing Jointly | $250,000 |
| Married Filing Separately | $125,000 |
This means the maximum effective federal rate on long-term capital gains can reach 23.8% (20% + 3.8% NIIT) for high earners.
Tax-Loss Harvesting
If you have capital losses in a given year, they can offset capital gains dollar for dollar. If losses exceed gains, you can deduct up to $3,000 of net capital loss against ordinary income per year. Excess losses carry forward to future tax years indefinitely.
This strategy — selling positions at a loss to offset taxable gains — is called tax-loss harvesting and is widely used by investors near year-end.
Key Planning Takeaways
- Hold assets for more than one year whenever practical to qualify for long-term rates.
- Stack gains in low-income years — if your taxable income stays below $48,350, long-term gains may be taxed at 0%.
- Offset gains with losses through tax-loss harvesting.
- Watch the NIIT threshold if your total income is approaching $200,000.
Use the Capital Gains Tax Calculator to model your 2025 tax liability across short-term and long-term scenarios.
FAQ
What is the capital gains tax rate for 2025?
Long-term capital gains rates for 2025 are 0% for single filers with taxable income up to $48,350, 15% for taxable income between $48,350 and $533,400, and 20% above $533,400. Short-term capital gains (assets held one year or less) are taxed as ordinary income using the same brackets as your wages, ranging from 10% to 37%.
What is the Net Investment Income Tax and who pays it?
The Net Investment Income Tax (NIIT) is an additional 3.8% tax on investment income — including capital gains, dividends, and interest — for taxpayers whose modified adjusted gross income (MAGI) exceeds $200,000 (single) or $250,000 (married filing jointly). It can bring the top effective rate on long-term gains to 23.8%.