A long-term capital gain is a profit from selling a capital asset held for more than 12 months. Long-term gains receive preferential federal tax rates compared to ordinary income.
2025 long-term capital gains tax rates:
| Rate | Single filers | Married filing jointly | |---|---|---| | 0% | Up to $48,350 | Up to $96,700 | | 15% | $48,350 – $533,400 | $96,700 – $600,050 | | 20% | Above $533,400 | Above $600,050 |
Plus 3.8% NIIT for high-income taxpayers → effective max 23.8%.
Qualifying dividends are also taxed at long-term capital gains rates (0%/15%/20%) rather than as ordinary income.
Special long-term rates: - Section 1250 unrecaptured depreciation (real estate): Maximum 25% rate. - Collectibles (art, coins, stamps): Maximum 28% rate. - Section 1202 QSBS: Potential 0% rate (up to $10M exclusion after 5 years).
Planning tip — 0% rate opportunity: Taxpayers in the 10%–12% ordinary income brackets pay 0% on long-term gains. Family members in lower brackets may realize gains at 0%.
Mutual fund capital gain distributions: When a fund sells securities at a gain, the gain is distributed to shareholders. Even though the shareholder didn't sell their shares, the distribution is taxable — short-term gains as ordinary income, long-term gains at preferential rates.
> Exam tip: The 0% long-term rate is a major planning opportunity for lower-income taxpayers. Know that qualified dividends use the same rate schedule as long-term gains. The 3.8% NIIT is an important add-on for high earners.