Capital Gains Tax

US rates

Long-term capital gains in the US are taxed at three main brackets, indexed annually:

• 0% for taxable income up to ~$47,000 single / ~$94,000 married (2025).
• 15% for taxable income up to ~$518,000 single / ~$583,000 married.
• 20% above those thresholds.

Plus a 3.8% Net Investment Income Tax on most investment income (including capital gains) for taxpayers above $200,000 single / $250,000 married. Top marginal long-term rate is therefore 23.8%.

Short-term capital gains (assets held one year or less) are taxed as ordinary income, with marginal rates up to 37% federal plus the 3.8% NIIT.

State taxes are on top. California taxes capital gains as ordinary income (up to 13.3%); Texas and Florida have no state income tax.

Why long-term rates are lower

The policy rationale for preferential rates: encourage long-term investment over short-term speculation, partially compensate for the inflation embedded in nominal gains, and avoid double-taxation on corporate profits already subject to corporate tax.

Critics of the differential argue it largely benefits wealthier taxpayers (whose income is more often in the form of capital gains than wages) and creates lockup effects — investors hold appreciated assets to avoid taxes even when they should rebalance.

Common ways to manage the tax

Tax-aware investing includes a few standard tools:

• Long-term holding. Beyond market discipline, the 1-year mark dramatically changes tax treatment.
• Tax-loss harvesting. Realize losses to offset gains and (up to $3,000/year) ordinary income.
• Asset location. Hold high-turnover or high-yield assets in tax-advantaged accounts (401(k), IRA, Roth IRA); hold long-held individual stocks and tax-efficient ETFs in taxable accounts.
• Step-up in basis at death. Heirs receive inherited assets at fair market value as their cost basis. A long-held appreciated position can be passed to heirs with the embedded gain effectively untaxed at the federal level.
• Charitable donation of appreciated stock. Donating long-held appreciated stock to a qualified charity yields a deduction at fair market value while avoiding the capital gains tax on the embedded appreciation.
• Qualified Opportunity Zones. Investing realized gains into QOZ funds defers and partially eliminates the gain, subject to specific holding periods.
• 1031 exchanges. For real estate, swapping one investment property for another can defer the capital gain. Has been narrowed in scope since 2017.

Crypto capital gains tax

In the US, crypto is treated as property for tax purposes. Every sale, swap, or use to buy goods is a taxable event with the same long-term/short-term treatment as stocks. Tracking is significantly harder than stocks because of the volume of events typical crypto users generate; specialized software is essentially required for active users.

A long-running policy debate concerns whether to extend the wash-sale rule to crypto (currently it doesn't apply, allowing crypto-specific tax-loss harvesting that wouldn't be permitted with stocks). As of early 2025, legislation has been proposed but not enacted.

International variations

Capital gains tax structures vary widely:

• UK — annual exemption (£3,000 in 2025), then rates of 18% (basic rate band) or 24% (higher rate band) on most assets.
• Germany — 25% flat tax on most capital gains. Personal-use gains (including crypto held over one year) are tax-free.
• Canada — only 50% of capital gains are included in taxable income (proposed change to 67% above $250K under recent reforms).
• Singapore, Hong Kong — generally no capital gains tax for most assets and most taxpayers.
• Japan — 20.315% flat rate on listed securities, plus crypto taxed as miscellaneous income at progressive rates up to 55%.

The variation produces meaningful differences in after-tax investment outcomes for international investors.