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.