Increased basic exemption limit: The basic exemption limit for long-term capital gains tax has been raised from Rs. 1 lakh to Rs. 1.25 lakh. This change provides some relief to taxpayers, allowing them to earn higher gains without incurring tax.
The IRS gives you a tax break for holding investments for at least a year by reducing the taxes on the profits you make from their sale. You can also deduct or carry over to the next tax year up to $3,000 in capital losses, then $3,000 again the following year, and so on, until you've claimed all the losses.
Long-term capital gains are taxed at 0%, 15%, or 20%. Some exceptions: High-earning individuals may also need to account for the net investment income tax (NIIT), an additional 3.8% tax that can be triggered if your income exceeds a certain limit.
This means that if you sell your home for a gain of less than $250,000 (or $500,000 if married, filing jointly), you will not be obligated to pay capital gains tax on that amount.
Long-term capital gains tax rates for the 2025 tax year
For the 2025 tax year, individual filers won't pay any capital gains tax if their total taxable income is $48,350 or less. The rate jumps to 15 percent on capital gains, if their income is $48,351 to $533,400. Above that income level the rate climbs to 20 percent.
Current tax law does not allow you to take a capital gains tax break based on your age. In the past, the IRS granted people over the age of 55 a tax exemption for home sales, though this exclusion was eliminated in 1997 in favor of the expanded exemption for all homeowners.
Key takeaways
If you have more capital losses than gains, you may be able to use up to $3,000 a year to offset ordinary income on federal income taxes, and carry over the rest to future years.
Contribute to Your Retirement Accounts
Investing in retirement accounts eliminates capital gains taxes on your portfolio. You can buy and sell stocks, bonds and other assets without triggering capital gains taxes. Withdrawals from Traditional IRA, 401(k) and similar accounts may lead to ordinary income taxes.
Long-term capital gains of up to ₹1 lakh are exempted from tax. However, please note that as per the latest Union Budget, this limit of ₹1 lakh has been increased to ₹1.25 lakh, which will be effective from FY 24-25.
Capital gains tax rates
A capital gains rate of 0% applies if your taxable income is less than or equal to: $47,025 for single and married filing separately; $94,050 for married filing jointly and qualifying surviving spouse; and. $63,000 for head of household.
Capital gains can be either long-term or short-term, depending on how long you hold the asset. Assets held for one year or less are subject to short-term capital gains taxes, while assets held for longer than one year are subject to long-term capital gains taxes.
By reinvesting your capital gains into an opportunity zone fund, you can defer or even reduce your capital gains tax. Investments held for at least 10 years can benefit from a permanent exclusion from taxable income on new gains.
Carrying gains and losses forward
If capital losses still exceed capital gains, the filer can claim up to $3,000 as a loss and continue doing so year over year until the net loss amount is reduced to zero. Capital gains, however, cannot be carried forward.
If you have an overall net capital loss for the year, you can deduct up to $3,000 of that loss against other kinds of income, including your salary and interest income.
For example, if a long put option with a $100 strike price is purchased for $5.00, the maximum loss is defined at $500, and the profit potential is unlimited until the stock reaches $0. However, the underlying stock must be below $95 at expiration to realize a profit.
Exemptions on Long-Term Capital Gains Tax
Capital gains up to Rs 1.25 lakh per year (equity) are exempted from capital gains tax. Long-term capital gain tax rate on equity investments/shares will continue to be charged at 12.5% on the gains.
As of 2022, for a single filer aged 65 or older, if their total income is less than $40,000 (or $80,000 for couples), they don't owe any long-term capital gains tax.
A few options to legally avoid paying capital gains tax on investment property include buying your property with a retirement account, converting the property from an investment property to a primary residence, utilizing tax harvesting, and using Section 1031 of the IRS code for deferring taxes.
If it's your primary residence
You can sell your primary residence and avoid paying capital gains taxes on the first $250,000 of your profits if your tax-filing status is single, and up to $500,000 if married and filing jointly. The exemption is only available once every two years.
The limit on the exemption of Long-Term Capital Gains on the transfer of equity shares or equity-oriented units or units of Business Trust has increased from Rs.1 Lakh to Rs.1.25 lakh per year. However, the rate at which it is taxed has increased from 10% to 12.5%.
If you own a stock where the company has declared bankruptcy and the stock has become worthless, you can generally deduct the full amount of your loss on that stock — up to annual IRS limits with the ability to carry excess losses forward to future years.