Capital Gains Tax Explained

What counts as a capital asset
Short-term and long-term

Capital gains tax is the US federal income tax on the gain when you sell a capital asset, such as stock held as an investment, for more than your basis in it. The IRS's Topic no. 409, Capital gains and losses says: "When you sell a capital asset, the difference between the adjusted basis in the asset and the amount you realized from the sale is a capital gain or a capital loss." How long you held the asset decides whether the gain is short-term or long-term, and long-term gains can be taxed at lower rates.

Billed publishes this page. The rules below are US federal rules, quoted from IRS Topic no. 409 (last reviewed or updated September 24, 2026, with rates for tax year 2025), Publication 544 (2025), Sales and Other Dispositions of Assets and the 2025 Instructions for Schedule D (Form 1040), all opened on October 30, 2026. This is general information, not tax or investment advice; ask your accountant or a tax professional how the rules apply to you. State capital gains rules vary by state.

What counts as a capital asset

Topic 409 says: "Almost everything you own and use for personal or investment purposes is a capital asset. Examples of capital assets include a home, personal-use items like household furnishings, and stocks or bonds held as investments."

For a business, Publication 544 lists property that is not a capital asset, including:

"Stock in trade, inventory, and other property you hold mainly for sale to customers in your trade or business."
"Depreciable property used in your trade or business or as rental property (including section 197 intangibles, defined later), even if the property is fully depreciated (or amortized)."
"Real property used in your trade or business or as rental property, even if the property is fully depreciated."

For that kind of property, Publication 544 says: "Sales of this type of property are discussed in chapter 3." See what is tax depreciation and, for the accounting side, what is amortization.

Short-term and long-term

Topic 409 says: "Generally, if you hold the asset for more than one year before you dispose of it, your capital gain or loss is long-term. If you hold it one year or less, your capital gain or loss is short-term." The 2025 Schedule D instructions add an exception: "beginning in 2018, the long-term holding period for certain gains with respect to “applicable partnership interests” is more than 3 years."

To count the time, Publication 544 says: "To figure if you held property longer than 1 year, start counting on the day following the day you acquired the property. The day you disposed of the property is part of your holding period."

2025 rates on net capital gain

Topic 409 says: "Net capital gains are taxed at different rates depending on overall taxable income, although some or all net capital gain may be taxed at 0%." For 2025:

0%: "A capital gains rate of 0% applies if your taxable income is less than or equal to: $48,350 for single and married filing separately; $96,700 for married filing jointly and qualifying surviving spouse; and $64,750 for head of household."
15%: "A capital gains rate of 15% applies if your taxable income is: more than $48,350 but less than or equal to $533,400 for single; more than $48,350 but less than or equal to $300,000 for married filing separately; more than $96,700 but less than or equal to $600,050 for married filing jointly and qualifying surviving spouse; and more than $64,750 but less than or equal to $566,700 for head of household."
20%: "a capital gains rate of 20% applies to the extent that your taxable income exceeds the thresholds set for the 15% capital gain rate."
Short-term: "Net short-term capital gains are subject to taxation as ordinary income at graduated tax rates."

Topic 409 adds: "There are a few other exceptions where capital gains may be taxed at rates greater than 20%", including: "Net capital gains from selling collectibles (such as coins or art) are taxed at a maximum 28% rate." It also notes: "Individuals with significant investment income may be subject to the net investment income tax (NIIT)." For 2026 figures, check Topic 409 when the IRS updates it.

Capital losses

Topic 409 says: "If your capital losses exceed your capital gains, the amount of the excess loss that you can claim to lower your income is 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." It adds: "If your net capital loss is more than this limit, you can carry the loss forward to later years."

Selling a business

Publication 544 says: "The sale of a business is usually not a sale of one asset. Instead, all the assets of the business are sold. Generally, when this occurs, each asset is treated as being sold separately for determining the treatment of gain or loss." Ask your accountant or a tax professional before you sell a business.

Reporting and estimated tax

Topic 409 says: "Report most sales and other capital transactions and calculate capital gain or loss on Form 8949, Sales and Other Dispositions of Capital Assets, then summarize capital gains and deductible capital losses on Schedule D (Form 1040)." It also says: "If you have a taxable capital gain, you may be required to make estimated tax payments." See quarterly estimated tax.

Sample: a long-term gain on shares

This is a sample with invented figures, for tax year 2025, using Topic 409's 2025 rates.

A single filer bought shares held as an investment on March 3, 2024, for $10,000.00, and sold them on April 15, 2025, for $16,000.00. They have no other capital gains or losses in 2025, and their 2025 taxable income, including the gain, is $76,000.00.

Holding period: counting starts on March 4, 2024, the day after the purchase. April 15, 2025 is more than 1 year later, so the gain is long-term.
Gain: $16,000.00 − $10,000.00 = $6,000.00.
Rate tier: taxable income of $76,000.00 is more than $48,350 and not more than $533,400, the 15% tier for single filers.
Tax on the gain at 15%: 15% × $6,000.00 = $900.00.

The Schedule D instructions direct filers to the Qualified Dividends and Capital Gain Tax Worksheet or the Schedule D Tax Worksheet for the actual tax calculation. Ask your accountant or a tax professional to run it with your own figures.

Where Billed fits

Records of what you paid for business assets help when you sell them. Billed's expense tracking page says: "Attach the receipt when you record the expense". Its financial reporting page says: "All reports in Billed can be exported for use with your accountant, bookkeeper, or tax software."

Frequently Asked Questions

What is capital gains tax?

It's the US federal income tax on the gain when you sell a capital asset for more than your basis in it. IRS Topic 409 defines the gain or loss as the difference between the adjusted basis and the amount realized from the sale.

How long must I hold an asset for a long-term gain?

IRS Topic 409 says: "Generally, if you hold the asset for more than one year before you dispose of it, your capital gain or loss is long-term. If you hold it one year or less, your capital gain or loss is short-term." Publication 544 says: "To figure if you held property longer than 1 year, start counting on the day following the day you acquired the property."

What are the 2025 capital gains tax rates?

IRS Topic 409 lists 0%, 15% and 20% rates on net capital gain for 2025, depending on taxable income and filing status. For single filers, 0% applies at taxable income up to $48,350, and 15% at more than $48,350 up to $533,400. Net short-term gains are taxed as ordinary income.

Is business equipment a capital asset?

Publication 544 lists depreciable property used in your trade or business among the property that is not a capital asset, even if it's fully depreciated. Ask your accountant or a tax professional how a sale of business property is taxed.

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What Is Capital Gains Tax? Basics for Business Owners