Capital gains tax rates and brackets

You generally enter the long term category for capital gains and losses after twelve months of ownership, although a rule effective in 2018 sets a longer threshold exceeding three years for certain applicable partnership interest gains. A holding period that does not exceed twelve months generally puts your result in the short term category. You classify your capital gains and losses this way to determine your net capital gain or loss.

Your classification begins before you separate short term and long term amounts. You first classify your gains and losses as ordinary or capital. You then classify your capital gains and losses by holding period. If you have long term gains and losses, you must identify your 28% rate gains and losses. If you have a net capital gain, you must identify any unrecaptured section 1250 gain.

You use ordinary income taxation for 2025 property profits classified as short term because the combined ownership duration totals at most twelve months. Those rates range from 10% to 37%.

Your net capital gain may receive a lower tax rate than your ordinary income. For this purpose, your net capital gain means the amount by which your net long term capital gain for the year exceeds your net short term capital loss for the year.

Your capital gains distributions are taxed as long term capital gains at 0%, 15%, or 20%, depending on your taxable income and filing status. This treatment applies regardless of how long you held the fund.

For 2026, if you file jointly, the stated 0% threshold for these distributions is taxable income up to $98,900.

When your capital results include the long term category, you must separately identify both profits and losses belonging to the 28% rate group. Separately distinguish your unrecaptured section 1250 amount whenever the net capital gain calculation produces a positive result. These identification requirements are part of classifying your gains and losses.

For purposes of the statutory capital gain rate subsection, your 28% rate gain is an excess calculation. You add your collectibles gain and section 1202 gain. You then compare that total with the sum of your collectibles loss, your net short term capital loss, and your long term capital loss carried to the taxable year under section 1212(b)(1)(B). Your 28% rate gain is the excess, if any, of the first total over the second.

Under this subsection, you add qualified dividends when computing net capital gain. The calculation starts with your net capital gain determined without the dividend provision and increases that amount by your qualified dividend income.

Your qualified dividend income means dividends you receive during the taxable year from domestic corporations or qualified foreign corporations, subject to the exclusions and special rules in that provision.

Your dividend is excluded if the distributing corporation is exempt from tax under section 501 or 521 in its taxable year of distribution or its preceding taxable year. Qualified dividend income also excludes amounts allowed as deductions under section 591 and dividends described in section 404(k).

Your dividend on a share is excluded if you fail the section 246(c) holding period requirements, applied by substituting 60 days for 45 days and a period of 121 days for a period of 91 days. Your dividend is also excluded to the extent you must make related payments on positions in substantially similar or related property. That obligation can arise through a short sale or otherwise.

Your qualified dividend income also excludes any amount you take into account as investment income under section 163(d)(4)(B). Dividends you receive from a regulated investment company or a real estate investment trust remain subject to the limitations in sections 854 and 857.

For your dividend to meet the general qualified foreign corporation definition, the foreign corporation must be incorporated in a United States possession or meet the specified treaty requirement, except as otherwise provided in the dividend provision. The treaty route requires eligibility for benefits under a comprehensive United States income tax treaty that the Secretary determines satisfactory for this purpose and that includes an exchange of information program.

If your foreign corporation does not otherwise meet that definition, it can still qualify for a particular dividend. The stock paying your dividend must be readily tradable on an established securities market in the United States.

Your foreign corporation is excluded if it is a passive foreign investment company, as defined in section 1297, in its taxable year when the dividend is paid or its preceding taxable year. The definition also excludes a corporation that first becomes a surrogate foreign corporation under section 7874(a)(2)(B) after enactment of that exclusion. That second exclusion does not apply if the corporation is treated as domestic under section 7874(b).

For your dividend rate differential under this provision, rules similar to section 904(b)(2)(B) apply.

If the dividend provision applies to you and you receive qualified dividend income from one or more extraordinary dividends on a share, a special loss rule applies. Any loss you have on selling or exchanging that share is treated as a long term capital loss to the extent of those dividends. The extraordinary dividends must be within the meaning of section 1059(c).

You can deduct capital losses up to your capital gains. If you are a taxpayer other than a corporation, you can also deduct the lower of $3,000 or the excess of your capital losses over your capital gains. If you are married and file separately, that dollar limit is $1,500.

Your allowable capital loss deduction, figured on Schedule D, is the lesser of your total net loss on line 16 or $3,000. A separate return limits your deduction to $1,500 when your filing status is married. Within the applicable limit, you can use your total net loss to reduce your income dollar for dollar.

You may be able to use capital losses exceeding the limit in future years. You must report all your capital gains and losses even if you cannot use all your losses in 2025. The Schedule D instructions direct you to the instructions for line 21 for details.

If you have a capital loss from disposing of an interest in a passive activity, your loss may be limited. For individuals, the capital loss deduction is limited to capital gains plus the lower of $3,000 or the excess of capital losses over capital gains. The additional deduction ceiling drops to $1,500 when you submit a separate married return. Publication 544 provides further information.