Long-Term Capital Gains
Profits from selling assets held for more than one year, taxed at preferential rates of 0%, 15%, or 20% depending on your taxable income.
Long-term capital gains are profits from selling capital assets held for more than one year. They receive preferential tax rates that are lower than ordinary income rates. For 2025, the rates are 0% for single filers with taxable income up to approximately $48,350 (about $96,700 for MFJ), 15% for middle-income taxpayers, and 20% for single filers with taxable income above approximately $533,400 ($600,050 for MFJ).
These favorable rates create a significant incentive to hold investments for at least one year before selling. The tax savings can be substantial — a taxpayer in the 32% marginal bracket who realizes a $50,000 long-term gain pays $7,500 at the 15% rate instead of $16,000 at ordinary rates, a savings of $8,500.
Additionally, high-income taxpayers may owe the 3.8% Net Investment Income Tax (NIIT) on top of the capital gains rate, potentially bringing the top effective rate to 23.8%. Strategic planning around when to realize gains — including spreading large gains across multiple tax years — can help manage the overall tax impact.
Related Terms
Capital Gains
The profit from selling a capital asset (stocks, real estate, etc.) for more than its purchase price. Capital gains are classified as short-term or long-term based on holding period.
Short-Term Capital Gains
Profits from selling assets held for one year or less, taxed at ordinary income tax rates (10% to 37%). There is no preferential rate for short-term gains.
Net Investment Income Tax (NIIT)
A 3.8% surtax on investment income (interest, dividends, capital gains, rental income) for individuals with modified AGI above $200,000 (single) or $250,000 (married filing jointly).
Cost Basis
The original purchase price of an asset (plus adjustments like commissions and reinvested dividends), used to calculate capital gain or loss when you sell.