When selling investments like stocks, real estate, or cryptocurrencies, understanding capital gains taxes can help you plan more effectively. This article breaks down how these taxes work, the latest rates, and tools to calculate your potential liabilities, ensuring you stay informed and prepared.
What Are Capital Gains?
Capital gains occur when you sell a capital asset for more than its original purchase price or basis. These assets can include:
- Stocks and bonds
- Real estate
- Cryptocurrencies
- Collectibles (e.g., art, antiques, precious metals)
- Personal property (e.g., cars, boats)
The difference between the selling price and the original purchase price (adjusted for any improvements or fees) is your capital gain. For example, if you bought a stock for $1,000 and sold it for $1,500, your capital gain would be $500
The IRS has specific rules for taxing capital gains, and a few factors can affect how much you’ll pay:
- How long you owned the asset
- Any costs or fees related to owning it
- Your income level
- Whether you’re single, married, or filing jointly
Before selling, your profits are called “unrealized gains,” and they aren’t taxed. Once you sell, those gains become “realized,” and that’s when taxes come into play.
Short-Term vs. Long-Term Capital Gains
The duration you hold an asset before selling it determines whether your gain is classified as short-term or long-term:
- Short-term capital gains: Assets held for one year or less
- Long-term capital gains: Assets held for more than one year
This distinction is important because short-term and long-term capital gains are taxed at different rates.
Capital Gains Tax Rates for 2024 and 2025
Long-Term Capital Gains Tax Rates
Long-term capital gains benefit from more favorable tax rates compared to short-term gains. The rates remain at 0%, 15%, and 20% for both 2024 and 2025, but the income thresholds have been adjusted for inflation.