I'm always amazed each tax season that people don't really know how the profits and losses from stock sales (capital gains) are taxed at the federal level, much less the state level. Depending on your income, they can be taxed at three different rates: 0%, 15%, or 20%.
Each year the IRS also unveils the new income tax thresholds that determine each rate. reflecting adjustments for inflation. Here are the new limits for 2025, (which will apply to tax returns you'll normally file in 2026) could have significant implications for taxpayers, particularly those with investment income.
For 2025, the long-term capital gains tax rates (for assets held for one year and a day or more) remain at 0%, 15%, and 20%, but when you qualify for them has changed.
Remember that short-term capital gains (assets held for one year or less) are taxed at ordinary income tax rates, just like W-2 or interest income.
Here are the new brackets based on your total income:
0% Rate:
Single filers: Up to $48,350
Married filing jointly: Up to $96,700
Head of household: Up to $64,750
15% Rate:
Single filers: $48,351 to $533,400
Married filing jointly: $96,701 to $600,050
Head of household: $64,751 to $566,700
20% Rate:
Single filers: Over $533,400
Married filing jointly: Over $600,050
Head of household: Over $566,700
How different are these to 2024?
Compared to 2024, these numbers reflect about a 2.8% increase across all brackets and filing statuses. While this percentage increases might not seem significant, they can translate into notable dollar amounts.
As an example, the near 2.8% increase in the 20% rate threshold for married couples filing jointly represents an additional $16,300 of income that can be taxed at the lower 15% rate in 2025 compared to 2024.
These adjustments also offer some advantages for taxpayers at the lower end of the bracket thresholds.
For this example, married couples filing jointly can now realize up to $2,650 more in capital gains at the 0% rate in 2025 compared to 2024.
Taking advantage of the 0% capital gains rate
The new 0% capital gains rate threshold for 2025 can help you in your tax liability planning.
- For example, If your income varies yearly, you might consider realizing long-term capital gains in years when your total taxable income is below the 0% threshold. This would allow you to take advantage of the lower tax rate.
- Also, depending on your situation, offsetting your capital gains with any losses you may have incurred (tax loss harvesting) could help.
Knowing how the capital gains rate works can really help you in determining whether you need to pay estimated taxes for any given year and have a better conversation with your tax preparer in the quest to minimize your tax liabilities.