A capital gain is the profit realized when you sell a capital asset (stocks, bonds, real estate, collectibles) for more than your cost basis. Capital gains are subject to federal income tax.
Holding period determines the rate:
| Holding Period | Type | Tax Rate (2025) | |---|---|---| | ≤12 months | Short-term capital gain | Ordinary income rates (10%–37%) | | >12 months | Long-term capital gain | 0%, 15%, or 20% (based on income) |
Long-term capital gains rates (2025): - 0%: Taxable income ≤ $48,350 (single) / $96,700 (MFJ) - 15%: Taxable income $48,350–$533,400 (single) / $96,700–$600,050 (MFJ) - 20%: Above those thresholds
Net Investment Income Tax (NIIT): An additional 3.8% tax on net investment income (including capital gains) for high-income taxpayers: MAGI > $200,000 (single) / $250,000 (MFJ). Effective top rate: 23.8%.
Capital loss deduction: Capital losses can offset capital gains dollar-for-dollar. If losses exceed gains, up to $3,000 of net losses can be deducted against ordinary income per year. Unused losses carry forward indefinitely.
Special rates: - Collectibles: Maximum 28% rate. - Section 1202 stock (QSBS): Up to 100% exclusion for qualifying small business stock held 5+ years. - Unrecaptured Section 1250 gain (real estate depreciation): Maximum 25% rate.
> Exam tip: Long-term = held more than 12 months (not 12 months — the day after 12 months). Know the 0%/15%/20% rates and that the NIIT adds 3.8% for high earners (effective max 23.8%). Heavily tested on CFP®, Series 65, and EA exams.