Capital Gains Tax Guide: Short-Term vs Long-Term Rates, Crypto & Tax-Loss Harvesting
Long-term capital gains (assets held 1+ year) are taxed at 0%, 15%, or 20%. Short-term gains are taxed as ordinary income (up to 37%). The difference can save thousands.
Capital Gains Tax Rates (2025)
The two-tier capital gains system creates a significant tax incentive to hold investments for over one year. Short-term gains are taxed at your marginal income tax rate — the same bracket your salary income falls in. Long-term gains receive preferential rates. Long-term capital gains rates for 2025: 0% on long-term gains if taxable income is below
Calculating Your Capital Gains Tax
Capital gains = Sale proceeds − Cost basis − Selling expenses. Cost basis is what you originally paid, including commissions and fees. Selling expenses include broker commissions and transfer taxes. Example: Bought $10,000 of a stock in 2022 ($10 commission = $10,010 basis). Sold for $18,000 in 2025 ($10 commission = $17,990 net). Long-term gain =
Cryptocurrency Capital Gains
The IRS treats cryptocurrency as property — not currency — for tax purposes. Every crypto transaction (sell, trade for another crypto, spend, or exchange for goods/services) is a taxable event. Holding without selling is not taxable. Same short-term ( salary after tax calculator to run the calculation for your scenario.
Tax-Loss Harvesting
Tax-loss harvesting is the strategic sale of investments at a loss to offset capital gains elsewhere, reducing current-year tax liability. Realized losses first offset same-type gains (short-term losses offset short-term gains; long-term losses offset long-term gains), then cross-offset, then offset up to $3,000 of ordinary income. Excess losses ca
Frequently Asked Questions
How do I avoid capital gains tax on stocks?
Legal strategies: (1) Hold investments 1+ year to qualify for lower long-term rates. (2) Use tax-advantaged accounts — stocks inside a Roth IRA grow and can be sold completely tax-free. (3) Stay within the 0% LTCG bracket by managing your taxable income below $48,350 (single) or
What is the capital gains tax on selling a house?
If you've lived in the home 2+ of the last 5 years: first $250,000 (single) or $500,000 (MFJ) of gain is excluded tax-free. Above those thresholds: long-term capital gains rates (0%, 15%, or 20%) apply. Example: single filer sells home for $700,000 (bought for $350,000). Gain: $3
Are capital gains taxed by state as well?
Yes, in most states. 43 states + DC tax capital gains as ordinary income (same rate as wages). A few states have no income tax (TX, FL, WA, NV, SD, WY, AK) — no state capital gains tax. California taxes all capital gains as ordinary income at up to 13.3% — the highest effective t
What is stepped-up basis at death?
When you inherit assets, your cost basis is 'stepped up' to the fair market value on the date of death. If your parent bought stock at $10 that is worth $100 when they die, you inherit it with a $100 basis — if you sell immediately, there's no capital gain. This rule eliminates c
How are stock options taxed?
Incentive Stock Options (ISOs): exercise itself is not a regular income tax event, but the spread (FMV at exercise minus strike price) is an AMT preference item. Sale of ISO shares held 2+ years from grant date and 1+ year from exercise qualifies for long-term rates. Non-Qualifie