How long you hold an investment before selling it can change your tax rate dramatically — sometimes by more than double. Here's how short-term and long-term capital gains actually differ.
The one-year line is everything
Hold an asset for one year or less before selling, and any profit is a short-term capital gain — taxed exactly like ordinary income, at your regular federal tax bracket (10% to 37%). Hold it for more than one year, and the profit becomes a long-term capital gain, taxed at preferential rates instead.
2025 long-term capital gains brackets
| Rate | Single Filers (taxable income) |
|---|---|
| 0% | Up to $48,350 |
| 15% | $48,351 – $533,400 |
| 20% | Above $533,400 |
These brackets are separate from — and generally lower than — the ordinary income brackets. A taxpayer in the 24% ordinary bracket, for example, might pay only 15% on their long-term gains.
Why the 0% bracket surprises people
If your taxable income (including the gain) falls in the lowest bracket, long-term capital gains can be taxed at 0% — a genuinely tax-free outcome that many investors don't realize applies to them, especially those with modest income in early retirement or a lower-earning year.
The Net Investment Income Tax
High earners may owe an additional 3.8% Net Investment Income Tax (NIIT) on investment income (including capital gains) above $200,000 (single) or $250,000 (married filing jointly) — on top of whichever capital gains rate otherwise applies.
See how a capital gain affects your total tax bill.
Use the Capital Gains Tax Calculator →A simple planning takeaway
If you're close to the one-year mark on an investment with a gain, waiting a few extra weeks to cross into long-term treatment can meaningfully reduce your tax bill — it's one of the few timing decisions entirely within your control.
Some assets (collectibles, certain small business stock, depreciation recapture on real estate) have special capital gains rules beyond the standard brackets shown here. Consult a CPA for guidance specific to your situation.