While explaining U.S. taxes to my friend Bulus, he summed up capital gains better than I did: "So if you buy land and the price of the land goes up, that's the capital gain." Exactly. A capital gain is the profit when you sell an asset (stock, crypto, land, a house) for more than you paid. It's different from income you earn by doing work, and the tax system treats it differently.
Short-term vs. long-term
- Short-term: you held the asset one year or less. The gain is taxed at your ordinary income tax rates, the same as wages.
- Long-term: you held it more than one year. The gain gets lower rates of 0%, 15% or 20%, depending on your taxable income.
That one-year line is why patient investors often pay less tax than frequent traders.
The 2025 long-term rate brackets
For tax year 2025 (the returns filed in 2026), the IRS lists these taxable-income thresholds:
- 0% if taxable income is up to $48,350 (single), $96,700 (married filing jointly), or $64,750 (head of household).
- 15% above those amounts, up to $533,400 (single), $600,050 (married filing jointly), or $566,700 (head of household).
- 20% above that.
Some higher earners also owe a 3.8% Net Investment Income Tax, and certain assets (like collectibles) have different rates. These numbers adjust for inflation every year, so check the current figures.
Losses help too
If you sell for less than you paid, that's a capital loss. Losses first offset gains. If losses are bigger than gains, you can deduct up to $3,000 per year ($1,500 if married filing separately) against other income, and carry the rest forward to future years.
Let your records do the work
Every sale is a taxable event. Many brokerages can connect to tax software, which imports each trade with its purchase and sale price and calculates the gain or loss. Without that, you'd need to dig up the cost basis for every sale yourself, so a good record of what you paid makes April (or October) much easier.
