What Are the Capital Gains Tax Thresholds?

When an individual sells an asset for more than its purchase price, the resulting profit is known as a capital gain. These gains are a form of income and are subject to taxation. The U.S. tax system has established specific income-based thresholds that dictate the tax rate applied to these profits. The amount of tax owed is directly linked to the taxpayer’s income level, creating a tiered system for capital gains taxation.

Differentiating Short-Term and Long-Term Gains

The tax treatment of a capital gain is determined by the length of time an asset is owned before it is sold, known as the holding period. A gain is classified as short-term if the asset was held for one year or less. Conversely, if an asset is held for more than one year, the profit from its sale qualifies as a long-term capital gain.

Short-term gains do not benefit from any special tax rate; instead, they are taxed as ordinary income. This means the profit is added to your other income, like wages, and taxed according to the standard federal income tax brackets.

Long-term gains are subject to their own set of tax rates, which are generally lower than ordinary income rates. These preferential rates are a feature of the tax code designed to encourage long-term investment. The specific capital gains tax thresholds that are often discussed apply exclusively to long-term gains.

Long-Term Capital Gains Tax Thresholds

The tax rates for long-term capital gains are 0%, 15%, and 20%, and the rate an individual pays depends on their total taxable income for the year. For the 2025 tax year, the income thresholds are set for each filing status. These thresholds are adjusted annually for inflation, and taxable income includes not just wages, but also the capital gain itself.

• Single: The 0% rate applies to taxable income up to $49,225. The 15% rate applies to income from $49,226 to $518,900, and the 20% rate applies to income above $518,900.
• Married Filing Jointly: The 0% rate applies to taxable income up to $98,450. The 15% rate applies to income from $98,451 to $583,750, and the 20% rate applies to income above $583,750.
• Head of Household: The 0% rate applies to taxable income up to $65,950. The 15% rate applies to income from $65,951 to $551,350, and the 20% rate applies to income above $551,350.
• Married Filing Separately: The 0% rate applies to taxable income up to $49,225. The 15% rate applies to income from $49,226 to $291,850, and the 20% rate applies to income above $291,850.

A key aspect of this system is how a significant capital gain can push a taxpayer into a higher tax bracket. For instance, a single individual with $40,000 in salary who realizes a $10,000 long-term capital gain has a total taxable income of $50,000. The salary and the first $9,225 of the gain fall within the 0% bracket. The remaining $775 of the gain that falls above the $49,225 threshold would be taxed at the 15% rate.

Special Capital Gains Scenarios

High-income earners may be subject to the Net Investment Income Tax (NIIT). This is an additional 3.8% tax levied on investment income, which includes capital gains, for taxpayers whose modified adjusted gross income (MAGI) surpasses certain amounts. These MAGI thresholds are $200,000 for single filers and $250,000 for married couples filing jointly.

The type of asset sold can also alter the applicable tax rate. Gains from the sale of collectibles, such as art, antiques, or coins, are not eligible for the standard long-term rates. Instead, they are taxed at a maximum rate of 28%.

Another special rate applies to a portion of the gain from selling certain depreciated real estate. This is known as unrecaptured Section 1250 gain. When a taxpayer has claimed depreciation deductions on a rental property, a part of the gain upon selling that property may be taxed at a maximum rate of 25%.

Calculating Your Taxable Gain

Before you can determine the tax, you must first calculate the amount of your taxable gain. This calculation begins with establishing the asset’s cost basis. The cost basis is the original price you paid for the asset, including any associated costs of acquisition like commissions or brokerage fees.

This initial basis can be modified over time, resulting in an “adjusted cost basis.” For real estate, the basis is increased by the cost of capital improvements but reduced by any depreciation claimed. For stocks and mutual funds, the basis is increased by any dividends that are automatically reinvested to purchase more shares.

The formula to determine your capital gain or loss is to take the proceeds from the sale and subtract the adjusted cost basis. For example, if you purchased shares of a stock for $10,000 and paid a $50 commission, your initial basis is $10,050. If you later sold those shares for $15,000 and paid another $50 commission, your net proceeds are $14,950. The taxable capital gain would be $14,950 minus $10,050, which equals $4,900.