Capital Gains Tax in the United States
The United States taxes capital gains at different rates depending on the holding period. Short-term gains are taxed at ordinary income rates (0-37%), while long-term gains benefit from reduced rates of 0%, 15%, or 20%. A 3.8% Net Investment Income Tax (NIIT) may also apply.
Short-Term Capital Gains
Assets held for one year or less are considered short-term. Short-term capital gains are taxed at the taxpayer's ordinary income tax rates (0-37% depending on filing status and income level). These gains are added to the taxpayer's other income and taxed at the marginal rate.
Long-Term Capital Gains
Assets held for more than one year qualify for preferential long-term capital gains rates. The applicable rate depends on taxable income:
| Rate | Single | Married Filing Jointly | Head of Household |
|---|---|---|---|
| 0% | Up to $47,025 | Up to $94,050 | Up to $63,000 |
| 15% | $47,026 - $518,900 | $94,051 - $583,750 | $63,001 - $551,350 |
| 20% | Over $518,900 | Over $583,750 | Over $551,350 |
Net Investment Income Tax (NIIT)
An additional 3.8% tax applies to the lesser of net investment income or modified adjusted gross income exceeding $200,000 for single filers and $250,000 for married couples filing jointly. This tax applies to capital gains, dividends, interest, rental income, and other passive income.
Special Capital Gains Rates
- Collectibles: Gains from collectibles (art, antiques, coins, precious metals) are taxed at a maximum rate of 28%
- Unrecaptured Section 1250 Gain: Depreciation recapture on real property is taxed at a maximum rate of 25%
- Qualified Small Business Stock (Section 1202): 50-100% exclusion for gains on qualifying stock held over 5 years
Exemptions and Reliefs
- Primary Residence: Up to $250,000 ($500,000 for married couples) of gain exclusion on sale of primary residence (must have lived in it 2 of last 5 years)
- Like-Kind Exchanges (Section 1031): Tax-deferred exchange of real property held for business or investment
- Wash Sale Rule: Losses on securities sold and repurchased within 30 days are disallowed
Reporting and Filing
Capital gains and losses are reported on Schedule D (Form 1040). Brokers provide Form 1099-B with cost basis information. Capital losses can offset capital gains plus up to $3,000 of ordinary income per year ($1,500 if married filing separately). Unused losses carry forward indefinitely.