How to Calculate Long-Term Capital Gains Tax

When you sell a capital asset, such as stocks, real estate, or collectibles, for a profit, that income is considered a capital gain. The tax implications depend on how long you owned the asset. A gain is categorized as long-term if you hold the asset for more than one year before its sale. This type of gain receives preferential tax treatment with rates lower than those applied to ordinary income. Conversely, if you hold an asset for one year or less, the profit is a short-term capital gain and is taxed at your regular income tax rate.

Information Needed for the Calculation

To calculate your gain, you first need to confirm the holding period, which is calculated from the day after you acquire the asset up to and including the date you sell it. Next, you need to identify the proceeds of the sale. This is the gross amount you received from the buyer, including the fair market value of any property or services. Selling expenses, such as brokerage commissions or legal fees, are subtracted from the gross proceeds to determine the “amount realized” from the sale.

The next piece of information is the asset’s adjusted basis. Your starting point is the cost basis, which is the original price you paid for the asset, including any associated costs like commissions, fees, and other acquisition expenses. For example, if you bought 100 shares of stock for $10,000 and paid a $50 commission, your cost basis would be $10,050.

The cost basis is then modified to arrive at the adjusted basis. Certain events can increase your basis, such as making capital improvements to real estate. If you owned a rental property and spent $20,000 on a new HVAC system, that amount would be added to your original cost basis. Conversely, some events decrease your basis, such as depreciation deductions you claimed on a rental property or a return of capital distribution on a stock.

The Calculation Formula

The formula for your gain or loss is the proceeds of the sale minus the asset’s adjusted basis. If the result is a positive number, you have a capital gain. If the result is a negative number, you have a capital loss.

Suppose you sold a property for $400,000 and incurred $20,000 in selling expenses, making your proceeds of sale $380,000. Your original cost basis was $250,000, and you made $30,000 in capital improvements, increasing your basis to $280,000. The calculation would be $380,000 (Proceeds) – $280,000 (Adjusted Basis), resulting in a long-term capital gain of $100,000.

When you have multiple capital asset sales in a tax year, the Internal Revenue Service (IRS) requires you to net your capital gains and losses. This means you must combine all your long-term capital gains with all your long-term capital losses to arrive at a single net long-term capital gain or loss.

For example, imagine in the same year as the property sale, you also sold two blocks of stock held for more than a year. You sold Stock A for a $15,000 gain and Stock B for a $5,000 loss. You would first net these two amounts ($15,000 gain – $5,000 loss = $10,000 net gain), which is then combined with the $100,000 gain from the property sale for a total net long-term capital gain of $110,000.

If you have a net long-term capital loss for the year, you can use it to offset other income. The deduction is limited to $3,000 per year ($1,500 if married filing separately). Any loss amount exceeding this limit can be carried forward to future tax years.

Determining Your Tax Rate

For most long-term capital gains, there are three tax rates: 0%, 15%, and 20%. The rate you pay is determined by your taxable income and filing status. Your capital gain is effectively stacked on top of your ordinary income to see which tax bracket it falls into.

For the 2025 tax year, the 0% rate applies to taxpayers with taxable income up to $48,350 for single filers and $96,700 for those married filing jointly. The 15% rate applies to taxable income from $48,351 to $533,400 for single filers and from $96,701 to $600,050 for married couples filing jointly. The 20% rate applies to taxable income exceeding these upper limits.

Some long-term capital gains are subject to special, higher tax rates. Gains from the sale of collectibles, which includes items like art, antiques, coins, and stamps, are taxed at a maximum rate of 28%. A rate of 25% applies to a portion of the gain from selling depreciable real estate, known as unrecaptured Section 1250 gain, which relates to depreciation you previously deducted.

The Net Investment Income Tax (NIIT) may also apply to your capital gains. This is a 3.8% tax on the lesser of your net investment income or the amount by which your modified adjusted gross income (MAGI) exceeds certain thresholds. For 2025, these thresholds are $200,000 for single filers and $250,000 for married couples filing jointly.

Reporting on Tax Forms

You report your capital gains transactions on Form 8949, Sales and Other Dispositions of Capital Assets. On this form, you will list each transaction with a description of the property, acquisition and sale dates, proceeds, and basis. The form has separate sections for short-term (Part I) and long-term (Part II) transactions.

The totals from Form 8949 are carried over to Schedule D, Capital Gains and Losses. Schedule D combines the totals to calculate your overall net capital gain or loss for the year. The final figure from Part III of Schedule D is then transferred to your main tax return, Form 1040. The tax on your net capital gain is calculated and entered on your Form 1040, contributing to your total tax liability.