Long-Term Capital Gains
Definition
Profits from selling assets held for more than one year, taxed at preferential rates of 0%, 15%, or 20% depending on your total taxable income.
Long-term capital gains receive favorable tax treatment as an incentive for patient, long-term investing. When you sell an asset you've held for more than one year at a profit, the gain is classified as long-term and taxed at rates significantly lower than ordinary income rates.
The three long-term capital gains tax brackets for 2025 are: 0% for single filers with taxable income up to approximately $48,350 (or $96,700 for married filing jointly), 15% for income up to approximately $533,400 (single) or $600,050 (married), and 20% for income above those thresholds.
High-income taxpayers also pay the 3.8% Net Investment Income Tax (NIIT) on top of the capital gains rate, bringing the effective maximum federal rate to 23.8%. Still, this is substantially lower than the top ordinary income rate of 37%.
The holding period is calculated from the day after you acquire the asset to the day you sell it. For securities purchased on an exchange, the trade date (not settlement date) determines the acquisition and sale dates. For crypto, the holding period starts when you receive the tokens.
Understanding this distinction drives many investment decisions. Tax-aware investors often wait to sell appreciated positions until they qualify for long-term treatment. A $10,000 gain taxed at 15% costs $1,500, while the same gain taxed at the 32% ordinary rate costs $3,200 — a $1,700 difference just for waiting.
Where this appears in Clarity
Clarity automatically tracks and calculates these concepts across your connected accounts.
Related Terms
Frequently Asked Questions
Does the one-year holding period include the purchase date?
The holding period starts the day after you acquire the asset. To qualify for long-term treatment, you must hold for more than one year. If you bought on January 15, 2025, you need to sell on January 16, 2026 or later for long-term treatment.
Do long-term capital gains affect my tax bracket?
Long-term capital gains are taxed separately from ordinary income using their own rate schedule. However, they can push you into a higher capital gains bracket and may trigger the 3.8% Net Investment Income Tax if your income exceeds certain thresholds.