Capital Gains Tax (CGT) is a tax on the profit realized from selling or disposing of a capital asset. It applies to the positive difference between the asset's sale price and its original purchase price, known as the cost basis. Common capital assets include stocks, bonds, real estate, and collectibles like art and jewelry. CGT is only triggered when the asset is sold; the increase in value is considered an unrealized capital gain until then.
The tax rate applied to a capital gain depends on how long the asset was held. Short-term capital gains, for assets held a year or less, are taxed as ordinary income, with rates ranging from 10% to 37%. Long-term capital gains, for assets held over a year, are subject to 0%, 15%, or 20% rates, depending on the taxpayer's taxable income. As of 2025, single filers making over $48,350 and married couples filing jointly earning more than $96,700 are subject to capital gains taxes. Certain assets, like small business stock and collectibles, may be taxed at a maximum 28% rate. Some states may also impose their own capital gains taxes. Strategies exist to minimize CGT, such as tax-loss harvesting, using tax-advantaged accounts, and holding investments for over a year. Additionally, homeowners may be eligible for an exemption on gains from the sale of their primary residence.
