Capital Gains Tax

Tax Planning
Updated Apr 2026 • Has calculator

US tax on profit from selling a capital asset, with lower rates for assets held over one year.

Tax laws change annually and vary by country. The information on this page is for educational purposes only. Always verify figures with current official sources (IRS, HMRC, CRA, ATO) and consult a qualified tax professional before making any tax-related decision.

What is Capital Gains Tax?

Capital gains tax is levied on profits from selling capital assets such as stocks, bonds, and real estate. Assets held for more than one year qualify for the preferential long-term capital gains rates (0%, 15%, or 20% in 2025), which are significantly lower than ordinary income rates. Assets held one year or less are taxed as short-term capital gains at ordinary income rates. Long-term rates are 'stacked' on top of ordinary income to determine which bracket applies.

Formula

LTCG: bracket rates 0%/15%/20% based on total income; STCG: taxed at marginal income rate

Worked Example

Worked example — Stock sale — long-term capital gain 2025

2025

Step 1  Sold stock held 3 years | Cost basis: $30,000 | Sale price: $80,000
Step 2  Long-term capital gain: $50,000
Step 3  Other taxable income (single filer): $75,000
Step 4  LTCG 0% threshold (single 2025): $48,350 — already exceeded by ordinary income
Step 5  All $50,000 gain falls in 15% bracket
Step 6  Capital gains tax = $50,000 × 15% = $7,500 (15.0% effective)
Step 7  → Short-term: would have been $50,000 × 22% = $11,000 (+$3,500 more)

Source: IRS Rev. Proc. 2024-40 — 2025 Capital Gains Rates (2024-10-22)

Calculate Capital Gains Tax

Profit from selling the asset (sale price minus cost basis)

Other ordinary taxable income (after deductions) in the same year

0 = Single, 1 = Married Filing Jointly, 2 = Head of Household

1 = Long-term (held >1 year, lower rate), 0 = Short-term (held ≤1 year, ordinary rate)

Capital Gains Tax

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Not investment advice.

How to Interpret Capital Gains Tax

< 1000
Minimal tax — small gain or favorable bracket
1000 – 10000
Moderate — typical mid-size investment gain
10000 – 50000
Significant — consider tax-loss harvesting to offset
> 50000
Large — consult a tax professional on timing

📚 Tax Basics — Complete the path

  1. Federal Income Tax
  2. Capital Gains Tax
  3. After-Tax Return
  4. Tax-Equivalent Yield
  5. Real Return
Sources
  1. IRS Rev. Proc. 2024-40 — 2025 Capital Gains Rates
  2. IRS Topic No. 409 — Capital Gains and Losses