Capital Gains Tax 

What is Capital Gains Tax? 

Capital Gains Tax is the tax imposed on the profit earned from selling investments or assets. For example, selling stocks, real estate, or other taxable assets.  

The amount it was purchased at, how long the holding period was (short-term or long-term), and the investor’s income level or tax bracket all help determine the amount of tax owed. It can also include other payments such as broker fees, commissions, etc. 

Short-Term & Long-Term Capital Gains 

According to the IRS, CGT can be classified into two broad categories based on how long the asset is held 

Short-Term Capital Gains

If an investment is sold within one year of its purchase, the profits are taxed as ordinary income tax rates which range from 0% to 37% depending on the investor’s tax bracket. 

Long-Term Capital Gains

If an investment is kept for more than one year before being sold, the profit is taxed at a lower tax rate which ranges from 0%, 15%, to 20%.  In some cases, high-income individuals may also be subject to an extra 3.8% Net Investment Income Tax (NIIT) on both short-term and long-term capital gains. This applies only if the gross income is over $200,000 for individuals and over $250,000 for married couples. 

Capital Gains Tax Rate (2025) 

Short-term capital gains are taxed according to ordinary income tax brackets. While, long-term capital gains are taxed at 0%, 15%, or 20%, based on the taxable income.