Summary
Find out what capital gains taxes are, how they're calculated, and the differences between short- and long-term gains for investors.
Capital Gains Tax: What you need to know
Points to know
- When an investment increases in value, the increase is considered a capital gain.
- Capital gains are "realized" (and subject to tax) when you sell the investment.
- Capital gains are subject to different tax rates depending on how long you owned the investment.
- Strategies that can help minimize capital gains taxes include tax-loss harvesting, holding investments for over a year, using tax-advantaged accounts, and making charitable donations.
What are capital gains taxes?
Capital gains are profits on an investment. When you sell investments at a higher price than what you paid for them, the capital gains are "realized." You'll owe taxes on your realized gains. Investments subject to capital gains taxes include stocks, bonds, mutual funds, real estate, and valuable personal property like artwork, jewelry, and collectibles.
Figuring out how much of your sale amount was made up of taxable earnings can be tricky. You'll first need to know how much you originally paid for the shares (your cost basis).
Realized gains vs. unrealized gains
Gains that are "on paper" only are called "unrealized gains." For example, if you bought a share for $10 and it's now worth $12, you have an unrealized gain of $2. You won't pay any taxes until you sell the share.
Unrealized gains could be very important if you invest in funds, however. When you buy shares of a mutual fund or ETF (exchange-traded fund), you're also "buying" a proportional slice of any unrealized gains it has—and you'll be subject to their eventual taxation. You may also owe taxes if the fund realizes a gain by selling a security for more than the original purchase price, even if you haven't sold any shares.
Long-term vs. short-term capital gains
Long-term capital gains are gains on investments you owned for more than 1 year. They're subject to a 0%, 15%, or 20% tax rate, depending on your level of taxable income.
Short-term capital gains are gains on investments you owned for 1 year or less, and they're taxed at your ordinary income tax rate.
2024 and 2025 capital gains tax rates
In 2024, single filers making more than $47,025 and married filers—filing jointly—making more than $94,050 are subject to capital gains taxes. In 2025, these limits have increased to $48,350 and $96,700.
The table below shows long-term capital gains rates for 2024 and 2025 by income and filing status. Realized capital gains from 2024 are reported on taxes filed in 2025 and realized gains from 2025 are reported in 2026.
Long-term capital gains tax rates for 2024 and 2025
| Tax rate | Individual filing | Married filing jointly | Married filing separately | Head of household |
| 0% | 2024: $0 to $47,025 2025: $0 to $48,350 |
2024: $0 to $94,050 2025: $0 to $96,700 |
2024: $0 to $47,025 2025: $0 to $48,350 |
2024: $0 to $63,000 2025: $0 to $64,750 |
| 15% | 2024: $47,026 to $518,900 2025: $48,351 to $533,400 |
2024: $94,051 to $583,750 2025: $96,701 to $600,050 |
2024: $47,026 to $291,850 2025: $48,351 to $300,000 |
2024: $63,001 to $551,350 2025: $64,751 to $566,700 |
| 20% | 2024: $518,901 or more 2025: $533,401 or more |
2024: $583,751 or more 2025: $600,051 or more |
2024: $291,851 or more 2025: $300,001 or more |
2024: $551,351 or more 2025: $566,701 or more |
Tax rate
0%
Individual filing
2024: $0 to $47,025
2025: $0 to $48,350
Married filing jointly
2024: $0 to $94,050
2025: $0 to $96,700
Married filing separately
2024: $0 to $47,025
2025: $0 to $48,350
Head of household
2024: $0 to $63,000
2025: $0 to $64,750
Tax rate
15%
Individual filing
2024: $47,026 to $518,900
2025: $48,351 to $533,400
Married filing jointly
2024: $94,051 to $583,750
2025: $96,701 to $600,050
Married filing separately
2024: $47,026 to $291,850
2025: $48,351 to $300,000
Head of household
2024: $63,001 to $551,350
2025: $64,751 to $566,700
Tax rate
20%
Individual filing
2024: $518,901 or more
2025: $533,401 or more
Married filing jointly
2024: $583,751 or more
2025: $600,051 or more
Married filing separately
2024: $291,851 or more
2025: $300,001 or more
Head of household
2024: $551,351 or more
2025: $566,701 or more
Short-term capital gains are taxed as ordinary income in line with federal tax brackets.
How are capital gains reported?
Realized capital gains for individual securities are reported to you and the IRS on Form 1099-B. Realized gains for funds are reported on Form 1099-DIV.
Special rules and exclusions
Rules around capital gains taxes vary depending on the type of asset, the length of time it was held, and your tax bracket. These are some general exceptions and exclusions to know.
Primary residence exclusion
If you decide to sell a property that you've lived in for at least 2 of the past 5 years, you may be able to exclude up to $250,000 if you file individually or $500,000 if you file jointly. That means that if the profit is under these limits, you won't owe any capital gains tax.
On the other hand, for investment properties, the entire profit from the sale is subject to capital gains tax. The exact amount of tax owed will depend on the length of time the property was owned and the individual's income.
Small business stock and government bonds
If you hold qualified small business stock for at least 5 years, you may be able to exclude any gains from the sale of the stock from capital gains taxes. Gains from the sale of certain government bonds—like municipal bonds—may also be exempt.
Inherited investments and property
If you inherit properties or investments, the cost basis is stepped up to the fair market value at the time of the original owner's passing. As a result, any appreciation in value that occurred during their lifetime isn't subject to capital gains taxes.
High income earners
The net investment income tax (NIIT) is a 3.8% tax that applies to trusts, estates, and high-income individuals on certain types of investment income. You qualify as a high-income taxpayer if you earn:
- $200,000 and are filing individually or as head of household.
- $250,000 and are married filing jointly.
- $125,000 and are married filing separately.
Investment income that NIIT applies to includes but isn't limited to:
- Interest, dividends, and capital gains from stocks, bonds, mutual funds, and other holdings.
- Rental and royalty income.
- Nonqualified annuity distributions.
- Income from real estate investments and limited partnerships.
Contact a tax advisor if you're wondering whether the above exceptions are applicable to your situation. We have answers for general tax questions here.
Strategies to minimize capital gains taxes
Planning ahead and choosing tax strategies that are right for you can help minimize the taxes you pay on capital gains. Here are a few to consider.
Tax-loss harvesting
Tax-loss harvesting1 works to help reduce your capital gains taxes by using realized losses to offset realized gains. The money you save on taxes can then be reinvested, giving you the chance to potentially increase the value of your savings.
Holding investments for over a year
Investments held for longer than a year are subject to lower capital gains tax rates compared to those held for less than a year.
Using tax-advantaged accounts
Accounts like IRAs and 401(k)s offer tax-deferred growth—meaning taxes aren't due until funds are withdrawn. For accounts like Roth IRAs, taxes are due on contributions. Withdrawals aren't subject to capital gains taxes.
Charitable donations
Charitable donations are tax-deductible. Donating appreciated assets can help minimize capital gains taxes.
Wondering which of these strategies are right for you? A financial advisor can help.
Find out how Vanguard's advice services can help you create a holistic, tax-efficient financial plan.
1Tax-loss harvesting involves certain risks, including, among others, the risk that the new investment could have higher costs than the original investment and could introduce portfolio tracking error into your accounts. There may also be unintended tax implications. We recommend that you carefully review the terms of the consent and consult a tax professional before taking action.
All investing is subject to risk, including the possible loss of the money you invest.
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