Capital gains taxes are taxes imposed on the profit you make from selling a capital asset, such as stocks, bonds, real estate, or collectibles. The tax applies only to the "realized" gains, meaning the profit is taxed when you sell the asset, not while you hold it or if the asset's value increases on paper (unrealized gains)
. There are two main types of capital gains taxes depending on how long you hold the asset before selling:
- Short-term capital gains tax : Applies to assets held for one year or less. These gains are taxed at your ordinary income tax rate, which can be higher, ranging from 10% to 37% depending on your income
- Long-term capital gains tax : Applies to assets held for more than one year. These gains are taxed at lower rates, typically 0%, 15%, or 20%, depending on your taxable income and filing status. For example, in 2025, a single filer with taxable income up to $48,350 pays 0%, between $48,351 and $533,400 pays 15%, and above $533,401 pays 20% on long-term gains
Certain types of assets have special rates:
- Collectibles like art or coins are taxed at a maximum rate of 28%.
- Gains from qualified small business stock and some real estate gains may have different maximum rates (25% or 28%)
In summary, capital gains tax is a tax on the profit from selling investments or assets, with rates varying by how long you held the asset and your income level. Holding assets longer than a year generally results in lower tax rates on gains
