Capital gains tax basics

Capital gains tax applies when you dispose of a capital asset for more than its adjusted basis. Stocks, real estate, crypto, NFTs, business interests, and even collectibles fall under the rules. How long you held the asset determines whether the gain is short-term (taxed like ordinary income) or long-term (taxed at the preferential 0%, 15%, or 20% brackets).

What counts as a taxable event?

• Selling an investment for cash or converting one crypto asset into another.
• Spending appreciated property on goods or services (for example, paying with crypto).
• Receiving a distribution from a partnership or trust that includes capital gains.
• Being paid out when a company is acquired or a fund is liquidated.
• Claiming casualty or theft losses in excess of basis (rare, but taxable when insurance is involved).

IRS references: Publication 544 (Sales and Other Dispositions of Assets) and Publication 550 (Investment Income and Expenses).

Short-term vs. long-term holding periods

Holding periods begin the day after you acquire the asset and end on the day you dispose of it. A holding period of 365 days or less is short-term and taxed using the ordinary income brackets for your filing status. Holding the asset for 366 days or longer qualifies for long-term capital gains rates.

Example: You buy stock on March 1, 2024. The first day of your holding period is March 2. If you sell on March 1, 2025, you held the stock for 365 days and owe short-term tax. Selling on March 2, 2025 moves you into the long-term bracket.

How cost basis works

Your adjusted basis is the original purchase price plus the cost of acquiring the asset (commissions, fees) and any capital improvements. Reductions such as depreciation or casualty losses lower basis. Organizing documentation is crucial because a higher basis reduces your taxable gain.

• Brokerage statements provide basis for most stock and ETF transactions.
• For real estate, add settlement costs and qualified renovations. Keep receipts.
• Crypto basis tracking depends on exchange exports and wallet records—FIFO is the default if you do not identify lots.

Key 2025 thresholds

The 2025 long-term brackets are:

• 0% rate up to $47,025 (single), $94,050 (married filing jointly).
• 15% rate up to $518,900 (single), $583,750 (married filing jointly).
• 20% rate above those thresholds.

Short-term gains stack on top of your other taxable income, so the marginal rate depends on where you fall inside the ordinary income brackets. High earners may also owe the 3.8% Net Investment Income Tax.

Putting the rules to work

Use the capital gains calculator to price out a sale with your actual basis and sale price. Then open the scenario planner to test what happens if you wait until the gain qualifies for long-term treatment, relocate to a different state, or harvest losses to offset the gain.