Capital Gains Tax: What It Is, How It Works, and Current Rates

The capital gains or profits are referred to as having been realized when stock shares Click here or any other taxable investment assets are sold. The tax doesn’t apply to unsold investments or unrealized capital gains. Stock shares won’t incur taxes until they’re sold no matter how long the shares are held or how much they increase in value.

The capital gains tax rate applies only to profits from the sale of assets held for more than a year. This is referred to as long-term capital gains. The current rates are 0%, 15%, or 20% as of 2025 depending on the taxpayer’s tax bracket for that year although gains on collectibles are taxed at 28%.

Capital Gains Tax Rates for 2025
The profit on an asset that’s sold a year or less after its purchase is generally treated for tax purposes as if it were wages or salary. Such gains are added to your earned income or ordinary income on your tax return.

The same generally applies to dividends paid by an asset. They represent profit although they aren’t capital gains. Ordinary dividends are taxed as ordinary income for taxpayers who are in the 15% and higher tax brackets. Qualified dividends are subject to the 0%, 15%, or 20% capital gains tax.

A different system applies for long-term capital gains, however. The tax you pay on assets held for more than a year and sold at a profit varies according to a rate schedule that’s based on the taxpayer’s taxable income for that year. The rates are adjusted annually for inflation.