Capital gains taxes is a hot topic for anyone who is involved in investing and even for people who aren’t as it could potentially impact various aspects of day-to-day life, such as the jobs market. Generally, an investor will buy an asset at one price and sell it at a higher price for a profit. This profit is called a capital gain. These capital gains are subject to taxation by the IRS. Depending on how you manage your investments, your decisions could significantly impact your portfolio.
What are capital gains taxes?
Capital gains come from the sale of an asset, such as stocks or real estate. Assets will not incur taxes until they are sold or realized. There are two types of capital gains: short-term and long-term.
- Short-Term Gains
Short-term capital gains taxes are levied on the profits from the sale of an asset held for one year or less. These gains are taxed at the same rate as your ordinary income depending on the marginal tax bracket you fall under. Capital gains could also push you into a higher tax bracket as it increases your income.
- Long-Term Gains
Investments held for more than a year are considered long-term and are generally taxed less than ordinary income. High earners may also be subject to net investment income tax (NIIT), an additional 3.8% tax that people at a certain income level must consider.
Capital gains tax rate changes for 2025
In 2025, capital gains tax thresholds increased by about 2.8%, across various filing statuses. 2026 will have capital gains tax thresholds as well.
Filing status 0% rate if taxable 15% if taxable 20% if taxable
income is income is income is
Single < or = to $48,350 $48,351 through Over $533,400
$533,400
Married < or = to $96,700 $96,701 through Over $600,050
filing jointly $600,050
Married filing < or = to $48,350 $48,351 through Over $300,000
Separately $300,000
Head of < or = to $64,750 $64,751 through Over $566,700
Household $566,700[i]
Potential impact of a capital gains tax increase
Pros
- According to the Joint Economic Committee, there are no real benefits to investors, across the income spectrum, regarding the increase of capital gains taxes.
Cons
- Capital gains tax increases raise the cost of capital, decreasing investments and hindering economic growth, including:
- Decreasing real gross domestic product (GDP).
- Potentially hurting the jobs market.
- Decreasing real business spending.
- Taxpayers would pay capital gains on illusory, inflation-generated gains.
- Early economist, Adam Smith wrote in 1776, “A tax which tended to drive away stock from any particular country would so far tend to dry up every source of revenue both to the sovereign and to the society.”[ii] He was trying to make the point that too much tax on capital gains has a greater effect on society than just who (the wealthy) is being taxed.
- According to the Joint Economic Committee, increasing capital gains tends to drive down wages as well as the general standard of living.
Capital gains tax strategies to consider
- Hold onto your investment for over a year to prevent the profit from being taxed as regular income.
- Don’t forget about tax-advantaged accounts such as Roth IRAs.
- Your investment losses can be deducted from your investment profits to lower your income by the lesser of $3,000 ($1,500 if married filing separately) or your total net loss shown on line 16 of Schedule D (Form 1040), Capital Gains and Losses. If your net capital loss is more than this limit, you can carry the loss forward to later years.[iii]
- Look into exclusions that may allow you to exclude a portion of gains from the house sale.
- Talk with a financial professional regarding your concerns.
Discuss capital gains taxes with your financial professional
If you are an investor concerned about capital gains, consider reaching out to your financial professional to discuss the potential changes to capital gains tax rates and to help you develop or modify strategies to prepare for whatever legislation gets passed. It may be helpful to create a list of the pros and cons of a capital gains tax increase and going over it with your financial professional.
Sometimes people view trading as a way to make a quick buck by buying low and selling when the price is higher than when you bought it. However, if you fail to take into account the capital gains implications, a large chunk of your profits could be lost. This is one of the many risks involved when it comes to investing. Remember, there is no guarantee you will make money and some loss is to be expected. Working with a financial professional can be a beneficial approach to help mitigate some of the risks.
Important Disclosures
This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific situation with a qualified tax professional.
This article was prepared by LPL Marketing Solutions.
LPL Tracking #837841
Sources:
[i]Capital Gains Tax Rates For 2025-2026 | Bankrate
[ii]The global economics of corporate tax cuts — Adam Smith Institute
[iii]Topic no. 409, Capital gains and losses | Internal Revenue Service
