Capital Gains Tax on Stocks: 2024-2025 Guide to Rates, Rules and Strategies

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When you buy stocks, you hope they go up in value so you can sell them at a higher price than you paid. That’s the whole idea, right? The good news is that you’ve made some money. The bad news is that the money you’ve made is taxable.

It’s called capital gains because it’s the gain you made on the capital you invested. Understanding how capital gains tax on stocks works can help you plan smarter and potentially reduce what you owe.

What Is Capital Gains Tax?

A capital gains tax will apply to stocks that you choose to sell. For instance, when you sell stocks for a higher price than you bought them, the profit is known as a capital gain.

Capital Gains Tax Example

If you buy a stock for $5,000 and later sell it for $7,000, you could owe capital gains tax on the $2,000 profit. Whether you pay — and how much — depends on your income and how long you held the stock before selling.

The Internal Revenue Service categorizes these gains into two types: short-term and long-term. This distinction is important because it directly influences the amount of tax you’ll owe.

Short-Term vs. Long-Term Capital Gains

Capital gains taxes are categorized as either short-term or long-term. The key difference between short-term and long-term capital gains lies in how long you’ve held the stocks before selling them.

Short-Term Capital Gains Tax 

• Applies to assets held one year or less before selling.
• Taxed at the same rate as ordinary income — 10% to 37%.
• It is a higher tax burden for those who are high-income earners. 

Long-Term Capital Gain Tax 

• Long-term capital gains tax applies to assets held for more than one year before selling. 
• Depending on your taxable income, the amount can be taxed at 0%,15% or 20%. 
• Encourages long-term investing due to lower rates. 

Capital Gains Tax Rates

Capital gains tax rates are based on how long you’ve held the asset and your taxable income. Knowing these rates can help investors understand their potential tax liabilities.

Here are the tax rates applied to short-term and long-term capital gains for different filing statuses in 2024 and 2025.

Short-Term Capital Gains Tax Rate

Short-term gains are taxed as ordinary income, ranging from 10% to 37% depending on the income.

The IRS website has access to charts to help guide you regarding short-term and long-term capital gains tax rates. 

Long-Term Capital Gains Tax Rate

Long-term gains are taxed at 0%,15% or 20% depending on taxable income. 

2024 Long-Term Capital Gains Tax Rates

This is how the threshold breakdown can be interpreted:

• Taxed at 0% rate: Single filers who earn under $47,025. 
• Taxed at 15% rate: Most middle-income earners. 
• Taxed at 20% rate: Single filers earning over $518,900. 

2025 Long-Term Capital Gains Tax Rates 

How To Calculate Capital Gains Tax: 4-Step Guide

There are four steps to calculate your capital gains tax: 

Step 1. Start With Your Cost Basis

This is the price you paid for your investment including any commissions or fees. In the case of mutual funds or some stocks, it may also include reinvested dividends. 

• Consider the following example: You purchased stock for $5,000 and sold it for $7,500. The cost basis is what you paid for the stock, which is $5,000. 

Step 2. Calculate Your Net Sales Proceeds

This is the net amount you received when selling your investment, after any fees or commissions. 

• In the above scenario, the net sale proceeds are $7,500. That is the amount that you received from the sale. 

Step 3. Subtract Your Cost Basis From Your Net Sales Proceeds

This gives you the dollar amount of your net taxable gain.

• If your net sales proceeds are $7,500 and your cost basis is $5,000, your capital gain is $2,500. ($7,500 – $5,000 = $2,500)

Step 4. Apply the Correct Capital Gains Tax Rate

This will vary depending on your income and the holding period of your investment, which will determine if it’s a long-term or short-term capital gain.

•  If your income places you in the 15% long-term capital gains tax bracket, you’ll owe $375 in taxes.

Offsetting Gains With Losses — Tax-Loss Harvesting

There are ways to make sure you pay as little as you can on capital gain taxes. One way is using tax-loss harvesting.

Tax-loss harvesting is when you decide to sell investments that have lost value to offset what gains you’ve made with other investments. 

Here is how you should approach tax-loss harvesting: 

• Step 1. Identify losing investments: Review your portfolio. Stocks currently at a loss can be sold to offset taxable gains. 
• Step 2. Sell the losing investment: For instance, if you have $5,000 in gains, but have a $15,000 loss, you can eliminate your taxable gains. 
• Step 3. Offset additional income: If your loss exceeds gains, up to $3,000 can reduce taxable income — $1,500 for married filing separately. 
• Step 4. Carry over extra losses: If your loss is greater than $3,000, the remainder can be used in future tax years.
  

Final Take 

If you’re paying capital gains tax on stocks, the good news is you’ve made sound investments in your financial portfolio. However, you still want to minimize your tax burden. Here are some strategies to lower your tax bill. 

Key Takeaways to Minimize Capital Gains Tax on Stocks

• Hold stocks for more than one year. Avoid short-term capital gains tax rates by holding investments for more than a year before disposing of them. 
• Use tax-loss harvesting. You should write off net losses in order to offset taxes on capital gains. 
• Review your investments. Choosing tax-efficient investments, such as index funds or ETFs, can minimize capital gains distributions and associated taxes.
• Invest through retirement accounts. Certain investment accounts are not subject to capital gains taxes. Those accounts include 401(k)s and IRAs. 

If you’re unsure how to minimize your capital gain taxes, consult a tax professional or use tax software to explore your best options.

John Csiszar, Daria Uhlig, Elizabeth Constantineau and Karen Doyle contributed to the reporting for this article.

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