Long-Term Capital Gains
Profits from the sale of a capital asset held for more than one year, eligible for preferential federal tax rates of 0%, 15%, or 20% depending on the taxpayer's income.
Long-term capital gains receive favorable tax treatment under the Internal Revenue Code because Congress wants to encourage patient, long-horizon investing. To qualify, you must hold the asset for more than 12 months before selling it. A single day's difference — selling on day 365 versus day 366 — can mean the difference between paying your top ordinary income rate and paying 15%.
For the 2025 tax year, the three long-term capital gains rates are structured around taxable income thresholds. The 0% rate applies to single filers with taxable income up to $48,350 and married filing jointly filers up to $96,700 — meaning a retiree or low-income investor who earns primarily through long-term gains may owe nothing on those gains. The 15% rate covers the broad middle range: single filers from $48,351 to $533,400 and joint filers from $96,701 to $600,050. The 20% rate applies to income above those upper thresholds.
High-income investors should also be aware of the 3.8% Net Investment Income Tax (NIIT), which applies to net investment income — including long-term capital gains — when modified adjusted gross income exceeds $200,000 for single filers or $250,000 for joint filers. This effectively raises the top rate on long-term gains to 23.8% for affected taxpayers.
Long-term capital gains are first netted against long-term capital losses. Any remaining net long-term gain is combined with net short-term results. If both a net long-term gain and a net short-term loss exist, the loss offsets the gain, potentially moving some of the remaining gain into a lower or zero rate bracket.
Common strategies to maximize long-term treatment include delaying sales until just past the one-year mark, donating highly appreciated long-term shares to charity (avoiding the gain entirely), and gifting appreciated assets to family members in lower tax brackets. Qualified opportunity zone investments can also defer or partially exclude long-term gains when proceeds are reinvested under IRS rules. All long-term gains and losses are reported on Form 8949 and summarized on Schedule D.
2025 Rate Tables: For the 2025 tax year, the three long-term capital gains rate brackets are as follows. The 0% rate applies to single filers with taxable income up to $48,350, married filing jointly filers up to $96,700, and heads of household up to $64,750. The 15% rate applies to single filers with taxable income between $48,351 and $533,400, joint filers between $96,701 and $600,050, and heads of household between $64,751 and $566,700. The 20% rate applies to income above those upper thresholds. Note that these thresholds are based on taxable income — income after subtracting the standard or itemized deduction — so a married couple with $120,000 in gross income may still qualify for the 0% rate after deductions. Consult a tax professional or run a tax projection to determine which bracket applies to your specific situation.
NIIT Surtax Interaction: The 3.8% Net Investment Income Tax (NIIT) layers on top of long-term capital gains rates for taxpayers whose modified adjusted gross income (MAGI) exceeds $200,000 (single) or $250,000 (married filing jointly). This surtax means the effective top federal rate on long-term gains is 23.8%, not 20%, for high earners. Importantly, the NIIT threshold is not indexed for inflation — it has been fixed at $200,000/$250,000 since 2013 — so over time, more taxpayers cross the threshold as incomes rise. Planning strategies to manage NIIT exposure include deferring income into retirement accounts to reduce MAGI, harvesting capital losses to reduce net investment income, and structuring active business participation to convert passive income (which is subject to NIIT) into non-passive income (which is not). When modeling the combined tax cost of a long-term gain, always include both the stated capital gains rate and the potential NIIT surcharge.
The 0% Rate Opportunity: The 0% long-term capital gains bracket is among the most underutilized tax planning tools available to investors. A married couple in retirement with $96,700 or less in taxable income pays zero federal tax on long-term capital gains — including from stock sales, REIT distributions treated as qualified dividends, and most index fund gains. This creates a window to deliberately realize gains that have been deferred for years, reset the cost basis of appreciated holdings to current market value, and pay nothing in federal taxes on the gain. This strategy — sometimes called 'gain harvesting' — is most effective in the early retirement years before Social Security and RMDs inflate income. Running a tax projection before year-end to determine available room in the 0% bracket is a high-value exercise for any investor in a lower-income phase of life.