Capital Gains Tax Rate

There is no single capital gains tax rate. Which rate applies turns first on how long the asset was held, and then on the taxpayer’s total taxable income for the year, so the same dollar of gain can be taxed at nothing, at a preferential rate, or at the ordinary rates that apply to wages.

Net capital gains are taxed at different rates depending on overall taxable income, although some or all net capital gain may be taxed at 0% (IRS, Topic no. 409). The character question that comes before the rate question, whether a gain is capital at all, is worked through in ordinary income.

Short-Term Gain Has No Rate of Its Own

The preferential rates only reach gain on assets held long enough. Net short-term capital gains are subject to taxation as ordinary income at graduated tax rates (IRS, Topic no. 409).

The dividing line is one year, and it is a bright one. Generally, if the asset is held for more than one year before disposal, the capital gain or loss is long-term, and if it is held one year or less, the gain or loss is short-term (IRS, Topic no. 409). Exceptions exist for property acquired by gift, property acquired from a decedent, patent property, commodity futures and applicable partnership interests, and the IRS routes each to its own publication (IRS, Topic no. 409). How the clock is counted is set out in holding period.

So a client who sells at eleven months and a client who sells at thirteen months are not in the same rate system at all, whatever their income.

The Three Long-Term Rates

For taxable years beginning in 2025, the tax rate on most net capital gain is no higher than 15% for most individuals (IRS, Topic no. 409).

A capital gains rate of 0% applies if taxable income is less than or equal to $48,350 for single and married filing separately, $96,700 for married filing jointly and qualifying surviving spouse, and $64,750 for head of household (IRS, Topic no. 409).

A capital gains rate of 15% applies if taxable income is more than $48,350 but less than or equal to $533,400 for single, more than $48,350 but less than or equal to $300,000 for married filing separately, more than $96,700 but less than or equal to $600,050 for married filing jointly and qualifying surviving spouse, and more than $64,750 but less than or equal to $566,700 for head of household (IRS, Topic no. 409).

A capital gains rate of 20% then applies to the extent that taxable income exceeds the thresholds set for the 15% capital gain rate (IRS, Topic no. 409).

The breakpoints move every year. For taxable years beginning in 2026, the maximum zero rate amounts and maximum 15 percent rate amounts under section 1(j)(5)(B), as adjusted for inflation, are as follows (IRS, Rev. Proc. 2025-32, section 4, paragraph .03):

Filing status                                  Max zero rate    Max 15% rate
Married filing jointly and surviving spouse          $98,900        $613,700
Married filing separately                            $49,450        $306,850
Head of household                                    $66,200        $579,600
All other individuals                                $49,450        $545,500
Estates and trusts                                    $3,300         $16,250

Amounts per IRS, Rev. Proc. 2025-32, section 4, paragraph .03. Estates and trusts reach the top rate at a fraction of an individual’s income, which is why a gain trapped inside a trust is rarely taxed the way the same gain would be in a beneficiary’s hands.

The mechanism that moves those figures is written into the statute. For a taxable year beginning after 2018, each of the maximum zero rate and maximum 15-percent rate amounts is increased by that amount multiplied by the cost-of-living adjustment determined under section 1(f)(3) for the calendar year in which the taxable year begins, substituting calendar year 2017 for calendar year 2016 in subparagraph (A)(ii) of that provision, and any increase under that subparagraph that is not a multiple of $50 is rounded to the next lowest multiple of $50 (26 U.S.C. 1(j)(5)(C)).

The Statute Writes a Ceiling, Not a Rate

Reading the rates as a bracket table gets the right answer most of the time and the wrong mental model always. The Code does not attach a rate to capital gain. It caps the total tax.

If a taxpayer has a net capital gain for any taxable year, the tax imposed by section 1 for that year shall not exceed the sum of six computed amounts (26 U.S.C. 1(h)(1)). Those six run in a fixed order, and every one of them is a piece of the same ceiling:

1(h)(1)(A)   tax at the ordinary rates, as if this subsection had not been enacted,
             on the greater of two defined amounts
1(h)(1)(B)   0 percent of adjusted net capital gain up to a defined limit
1(h)(1)(C)   15 percent of a defined slice above that
1(h)(1)(D)   20 percent of adjusted net capital gain above the (B) and (C) amounts
1(h)(1)(E)   25 percent of a defined amount of unrecaptured section 1250 gain
1(h)(1)(F)   28 percent of taxable income above the sum of all the preceding amounts

Limbs per 26 U.S.C. 1(h)(1). Each line is one subparagraph of the same sum, not an alternative to the others.

Subparagraph (A) is itself two-limbed and the wider of the two limbs wins. The ordinary-rate computation runs on the greater of taxable income reduced by the net capital gain, or the lesser of the amount of taxable income taxed at a rate below 25 percent and taxable income reduced by the adjusted net capital gain (26 U.S.C. 1(h)(1)(A)). Because adjusted net capital gain is the narrower measure, a taxpayer with unrecaptured section 1250 gain or 28-percent rate gain can find part of the capital gain sitting inside the ordinary-rate limb rather than outside it.

One further consequence follows from the shape rather than from the arithmetic. The provision caps the tax imposed by section 1, so a taxpayer whose ordinary computation already produces a lower figure gets nothing from it.

The base the preferential rates run on is narrower than “capital gain”, and it is defined only for this subsection rather than for the Code at large. For purposes of that subsection, the term adjusted net capital gain means the sum of net capital gain, determined without regard to the qualified dividend paragraph, reduced but not below zero by the sum of unrecaptured section 1250 gain and 28-percent rate gain, plus qualified dividend income (26 U.S.C. 1(h)(3)). Qualified dividends ride with capital gain rather than with interest, which is why they are broken out separately on the return, and ordinary dividends works through that split.

Three Gains That Can Be Taxed Above 20 Percent

The IRS names them as exceptions to the 20% ceiling, and each has a different statutory home.

The taxable part of a gain from selling section 1202 qualified small business stock is taxed at a maximum 28% rate. Net capital gains from selling collectibles, such as coins or art, are taxed at a maximum 28% rate. The portion of any unrecaptured section 1250 gain from selling section 1250 real property is taxed at a maximum 25% rate (IRS, Topic no. 409).

The first two are one category in the Code, and again only inside this subsection. For purposes of that subsection, the term 28-percent rate gain means the excess, if any, of the sum of collectibles gain and section 1202 gain over the sum of collectibles loss, the net short-term capital loss, and the amount of long-term capital loss carried under section 1212(b)(1)(B) to the taxable year (26 U.S.C. 1(h)(4)). It is a net figure, so losses of the same kind, and certain unrelated losses, come out of it before any 28 percent computation happens.

Collectibles gain reaches further than a coin sale. For purposes of that same subsection, the terms collectibles gain and collectibles loss mean gain or loss from the sale or exchange of a collectible, as defined in section 408(m) without regard to paragraph (3) of that subsection, which is a capital asset held for more than 1 year, but only to the extent the gain is taken into account in computing gross income and the loss is taken into account in computing taxable income. Any gain from the sale of an interest in a partnership, S corporation, or trust which is attributable to unrealized appreciation in the value of collectibles is treated as gain from the sale or exchange of a collectible, and rules similar to the rules of section 751 apply for purposes of that sentence (26 U.S.C. 1(h)(5)).

The third exception is the depreciation one, and it is the one that surprises a client selling a building. What produces it, and how much of the gain it reaches, is set out in depreciation recapture and section 1250 property.

The 3.8 Percent That Sits On Top

The rates above are not the whole bill for a higher-income taxpayer, because a second tax reaches the same gain.

A 3.8 percent net investment income tax applies to individuals, estates, and trusts that have net investment income above applicable threshold amounts. For an individual it is 3.8 percent on the lesser of the net investment income, or the excess of modified adjusted gross income over $250,000 for married filing jointly or qualifying surviving spouse, $125,000 for married filing separately, and $200,000 for single or head of household (IRS, Topic no. 559).

Net gains from the disposition of property such as stocks, bonds, mutual funds, and real estate are inside net investment income, to the extent taken into account in computing taxable income, other than property held in a trade or business to which the tax does not apply (IRS, Topic no. 559).

The same gain can therefore carry both charges, and the two are measured on different bases. The capital gain rate is set against taxable income (IRS, Topic no. 409), while the net investment income tax is set against modified adjusted gross income (IRS, Topic no. 559), so neither figure answers the other’s question.

Common Questions

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