What is the difference between long-term and short-term capital gains tax rates in 2025?

The tax rate on investment gains depends entirely on how long you held the asset before selling.

Short-term capital gains (assets held 1 year or less) are taxed at your ordinary income tax rate, which ranges from 10% to 37% for 2024. There is no special preferential rate.

Long-term capital gains (assets held more than 1 year) receive preferential rates for 2024:

• 0%: Taxable income up to $47,025 (single) / $94,050 (MFJ)
• 15%: Taxable income $47,026 to $518,900 (single) / $94,051 to $583,750 (MFJ)
• 20%: Taxable income above $518,900 (single) / $583,750 (MFJ)

Net Investment Income Tax (NIIT): An additional 3.8% surtax applies to investment income (including capital gains) for taxpayers with MAGI over $200,000 (single) or $250,000 (MFJ). This means the maximum effective rate on long-term gains is 23.8% (20% + 3.8%).

Practical impact: The difference is enormous. A single filer in the 32% bracket selling $50,000 in short-term gains owes $16,000 in federal tax. The same gain held long-term at 15% would cost only $7,500, a savings of $8,500. This is why tax-efficient investors focus on holding investments for at least one year and one day.

Special rates: Collectibles (art, coins, stamps) are taxed at a maximum 28% long-term rate. Qualified small business stock (Section 1202) may be partially or fully excluded from tax. Depreciation recapture on real property is taxed at 25%.