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Capital Gains

When you sell a capital asset, the sale usually results in a capital gain or loss. A capital asset includes most property you own and use for personal or investment purposes.

Residents (Form 1040):

• You must include all capital gains in your income.

• You can deduct capital losses on the sale of investment property such as stocks or bonds. You can't deduct losses on the sale of personal-use property such as your home or car.

• A capital gain or loss is the difference between your basis and the amount you get when you sell an asset. Your basis is usually what you paid for the asset.

• Capital gains and losses are either long-term or short-term, depending on how long you held the property.

• If your capital losses are more than your capital gains, you can deduct the difference as a loss on your tax return. This loss is limited to $3,000 per year, or $1,500 if you are married and file a separate return.  If your total net capital loss is more than the limit you can deduct, you can carry over the losses you are not able to deduct to next year’s tax return.  

Short-term capital gains (assets held a year or less) are taxed as ordinary income. Therefore, for 2025, the nominal tax rate will be whatever tax bracket you are in (10%, 12%, 22%, 24%, 32%, 35% or 37%).

Long-term capital gains (assets held more than a year) are taxed at either 0%, 15% or 20% (see table below). 

There are three exceptions:

1. The taxable part of a gain from selling Section 1202 qualified small business stock is taxed at a maximum 28% rate.
2. Net capital gain from selling collectibles (such as coins or art) is taxed at a maximum 28% rate.
3. The part of any net capital gain from selling Section 1250 real property that is required to be recaptured in excess of straight-line depreciation is taxed at a maximum 25% rate.

2025 Long-Term Capital Gains Tax Brackets

For example, a married couple pays no capital gains tax if their total taxable income is no more than $96,701.  They'll pay 15% on capital gains if their taxable income is $96,701 to $600,050.  If their taxable income is over $600,051, they'll pay 20%.  Taxable income is line 15 on 2025 Form 1040.

Sale of Your Home

If you have a capital gain from the sale of your main home, you may qualify to exclude up to $250,000 of that gain from your income, or up to $500,000 of that gain if you file a joint return with your spouse. Publication 523, Selling Your Home, provides rules and worksheets. 

Qualifying for the Exclusion

In general, to qualify for the Section 121 exclusion, you must meet both the ownership test and the use test. You're eligible for the exclusion if you have owned and used your home as your main home for a period aggregating at least two years out of the five years prior to its date of sale. You can meet the ownership and use tests during different 2-year periods. However, you must meet both tests during the 5-year period ending on the date of the sale. Generally, you're not eligible for the exclusion if you excluded the gain from the sale of another home during the two-year period prior to the sale of your home. Refer to Publication 523 for the complete eligibility requirements, limitations on the exclusion amount, and exceptions to the two-year rule.

Nonresidents (Form 1040NR):

If you are physically present in the United States for 183 days or more during the year, U.S.‑source capital gains are taxable to you at a flat 30% rate, unless a tax treaty reduces or eliminates the tax.

U.S.‑source capital gains generally include gains from selling stock of a U.S. corporation, certain personal property located in the United States, and other property treated as U.S.‑source under the tax rules.

If you are physically present in the United States for fewer than 183 days during the year, most capital gains are not taxable unless they are effectively connected with a U.S. trade or business. However, gain from the sale of U.S. real property is always taxable, regardless of the number of days you spend in the United States, due to the FIRPTA rules.

Net Investment Income Tax

Individual taxpayers are liable for a 3.8% net investment income tax on the lesser of their net investment income, or the amount by which their modified adjusted gross income exceeds the statutory threshold amount based on their filing status. 

The statutory threshold amounts are:

• Married filing jointly — $250,000,
• Married filing separately — $125,000,
• Single or head of household — $200,000, or
• Qualifying widow(er) with a child — $250,000.

In general, net investment income includes, but is not limited to: interest, dividends, capital gains, rental and royalty income, and non-qualified annuities.