If you own investments or regularly sell assets, it's important to understand the potential tax implications.
What are capital gains?
When you sell a capital asset for a higher price than its original value, the money you make on that sale is called a capital gain. And when you sell an asset for less than its original value, the money you lose is known as a capital loss.
The difference between your capital gains and your capital losses is your net profit. For example, if you sold a stock for a $10,000 profit this year and sold another at a $4,000 loss, your net capital gain is $6,000.
Most items people own are considered capital assets. This can include investments, such as stocks, bonds, cryptocurrency or real estate, as well as personal and tangible items, such as cars or boats.
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ADAdvertisementWhat is capital gains tax?
Capital gains taxes are owed on profits made from the sale of assets. How much you pay depends on what you sold, how long you owned it before selling, your taxable income and your filing status. Capital gains can be subject to either short-term tax rates or long-term tax rates.
Some exceptions:
- High-earning individuals may also need to account for the net investment income tax (NIIT), an additional 3.8% tax that can be triggered if your income exceeds a certain limit.
- Long-term capital gains on so-called “collectible assets” can be taxed at a maximum of 28%. This includes items such as coins, precious metals, antiques and fine art. Short-term gains on such assets are taxed at the ordinary income tax rate.
What is long-term capital gains tax?
Profits from the sale of an asset held for more than a year are subject to long-term capital gains tax. The long-term capital gains tax rates are 0%, 15% or 20%, depending on taxable income and filing status. Per the IRS, most people pay no more than 15%.
What is short-term capital gains tax?
Short-term capital gains tax is a tax on profits from the sale of an asset held for one year or less. Short-term capital gains are treated as regular income and taxed according to ordinary income tax brackets: 10%, 12%, 22%, 24%, 32%, 35% or 37%.
» MORE: See which tax bracket you're in
Nerd tip
Capital gains taxes apply to assets that are "realized," or sold. This means that the returns on stocks, bonds or other investments purchased through and then held within a brokerage are considered unrealized and not subject to capital gains tax.
But one important caveat is investments that produce dividends. Even if you haven't sold a dividend stock or other dividend investment, the income you receive from the dividends may be considered a capital gain.
Assets held within tax-advantaged accounts — such as 401(ks) or IRAs — aren't subject to capital gains taxes while they remain in the account. Instead, you may pay regular income taxes when it comes time to make a qualified withdrawal, depending on what type of account it is.
» Ready to see the whole picture? Estimate your tax refund or bill with NerdWallet's tax calculator
Capital gains tax rate 2025
The following rates and brackets apply to long-term capital gains on assets sold in 2025, which are reported on taxes filed in 2026.
Tax rate | Single | Married filing jointly | Married filing separately | Head of household |
|---|---|---|---|---|
0% | $0 to $48,350 | $0 to $96,700 | $0 to $48,350 | $0 to $64,750 |
15% | $48,351 to $533,400 | $96,701 to $600,050 | $48,350 to $300,000 | $64,751 to $566,700 |
20% | $533,401 or more | $600,051 or more | $300,001 or more | $566,701 or more |
Short-term capital gains are taxed as ordinary income according to federal income tax brackets. | ||||
» MORE: Taxes on stocks
Capital gains tax rate 2026
The following rates and brackets apply to long-term capital gains on assets sold in 2026, which are reported on taxes filed in April 2027 (or by October 15, 2027, with an extension).
Tax rate | Single | Married filing jointly | Married filing separately | Head of household |
|---|---|---|---|---|
0% | $0 to $49,450 | $0 to $98,900 | $0 to $49,450 | $0 to $66,200 |
15% | $49,451 to $545,500 | $98,901 to $613,700 | $49,451 to $306,850 | $66,201 to $579,600 |
20% | $545,501 or more | $613,701 or more | $306,851 or more | $579,601 or more |
Short-term capital gains are taxed as ordinary income according to federal income tax brackets. | ||||
How to reduce or avoid capital gains taxes
1. Hold on
Whenever possible, hold an asset for longer than a year so you can qualify for the long-term capital gains tax rate, because it's significantly lower than the short-term capital gains rate for most assets. Our capital gains tax calculator shows how much that could save.
2. Use tax-advantaged accounts
These include 401(k) plans, individual retirement accounts and 529 college savings accounts, in which the investments grow tax-free or tax-deferred. That means you don’t have to pay capital gains tax if you sell investments within these accounts. Roth IRAs and 529 accounts, in particular, have big tax advantages. If you follow the account rules, you can withdraw money from those accounts tax-free. With traditional IRAs and 401(k)s, your money grows tax-deferred, then you pay taxes when you take distributions in retirement.
3. Rebalance with dividends
Rather than reinvest dividends in the investment that paid them, rebalance by putting that money into your underperforming investments. Typically, you'd rebalance by selling securities that are doing well and putting that money into those that are underperforming. But using dividends to invest in underperforming assets will allow you to avoid selling strong performers, and thus avoid the capital gains that would come from that sale.
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4. Look into tax-loss harvesting
The IRS taxes your net capital gain, which is simply your total long- or short-term capital gains (investments sold for a profit) minus the corresponding long- or short-term total capital losses (investments sold at a loss). The strategic practice of selling off specific assets at a loss to offset gains is called tax-loss harvesting. This strategy has many rules and isn't right for everyone, but it can help to reduce your taxes by lowering the amount of your taxable gains.
If your net capital loss exceeds your net capital gains, you can also offset your ordinary income by up to $3,000 ($1,500 for those married filing separately). Any additional losses can be carried forward to future years to offset capital gains or up to $3,000 of ordinary income per year.
5. Use the home sales exclusion
If you sold a house the previous year, you may be able to exclude a portion of the gains from that sale on your taxes. To qualify, you must have owned your home and used it as your main residence for at least two years in the five-year period before you sell it. You also must not have excluded another home from capital gains in the two-year period before the home sale. If you meet those rules, you can exclude up to $250,000 in gains from a home sale if you’re single, and up to $500,000 if you’re married filing jointly.
6. Consider a financial advisor
Working with a financial advisor can help you know how and when to take advantages of smart tax strategies in ways that are best for your specific financial situation and goals.
» Need help strategizing? See our picks for the best financial advisors
Frequently Asked Questions
How do I avoid capital gains taxes?
One way to avoid capital gains taxes on your investments is to hold them inside a tax-advantaged account, such as a 401(k) or an IRA. Investment earnings within these accounts aren't taxed until you take distributions in retirement (and in the case of a Roth IRA, the investment earnings aren't taxed at all, provided you follow the Roth IRA rules).
Otherwise, you can minimize — but not avoid — capital gains taxes by holding your investments for over a year before selling at a profit.
Do I have to pay capital gains taxes on cryptocurrency?
Yes, capital gains taxes apply to all capital assets, including cryptocurrency. Other examples of capital assets that may incur capital gains taxes when sold are stocks, mutual funds, real estate and cars.
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Article sources
NerdWallet writers are subject matter authorities who use primary, trustworthy sources to inform their work, including peer-reviewed studies, government websites, academic research and interviews with industry experts. All content is fact-checked for accuracy, timeliness and relevance. You can learn more about NerdWallet's high standards for journalism by reading our editorial guidelines.
- 1.Internal Revenue Service. Topic No. 409 Capital Gains and Losses: Capital Gain Tax Rates. Accessed Oct 9, 2025.
- 2.IRS.gov. Topic no. 409, Capital gains and losses. Accessed Oct 9, 2025.
