Capital gains tax is what you will owe the government for any profits made from the sale of an asset, such as a house or shares.
Here’s what you need to know about capital gains tax, including rates for 2025 and the difference between short-term and long-term gains.
Let’s start at the beginning. What are capital gains?
Capital gains refer to any profit made by purchasing an asset at one price and selling it at a higher price. It doesn’t refer to any profit you have on paper, that is, if you bought a stock and its value went up.
It’s a pretty simple concept, but as with everything related to the tax code, there are many nuances that can make it more complicated.
Further: IRS releases federal income tax brackets for 2026
A short-term capital gains tax applies on gains from investments that were sold after being held for one year or less. They are taxed at the same rate as your income. Check the IRS tax brackets to determine how much tax you pay on each portion of your income.
Long-term capital gains tax applies to investments that have been held for more than a year before being sold for a profit. They are generally taxed at a lower rate than short-term profits. For 2025 tax returns, the most you can expect to pay is 20%.
Capital gains taxes are not unique to the stock market. Anything that is considered a “capital asset” – that is, any investment that can increase in value and generate profits – is subject to tax.
Capital gains tax applies to:
The amount you are taxed on capital gains depends on how long you have held a given capital asset (whether it is a long-term or short-term gain) and your income (what tax bracket you are in). The higher your income, the more you will have to pay in capital gains taxes.
For short-term profits, you can follow the usual income tax guide to see how much you will pay for profits. Long-term capital gains tax rates for tax year 2025 remain at 0%, 15% or 20%.
The rate is 0% for:
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Single filers filing separately with taxable income less than or equal to $49,450.
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Married filing jointly with taxable income less than or equal to $98,900.
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Married filing separately with taxable income less than or equal to $49,450.
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Head of household with taxable income less than or equal to $66,200.