Capital Gains & Losses (2025)

Capital Assets

Generally, everything owned for personal or investment purposes (main home, vacation home, furniture, vehicles, boats, antiques, collectibles, stocks, bonds, mutual funds, digital assets/crypto). Main exceptions (non-capital assets):

• Inventory (sold to customers)
• Depreciable business property
• Business real property (commercial buildings, rental property)
• Self-created copyrights, manuscripts, artwork
• Accounts receivable from business
• Supplies used in business

Personal-use property losses: NOT deductible (only gains taxable). But personal-use collectibles held >1 year may qualify for 28% collectibles rate.

Holding Period

Determines short-term vs. long-term:

• Short-term: Held ≤1 year → taxed at ordinary rates
• Long-term: Held >1 year → taxed at capital gain rates (0%, 15%, 20%)
• Holding period starts day AFTER acquisition, ends on day OF sale

Capital Gain Tax Rates (2025)

Collectibles (art, coins, antiques): Max 28% (if held >1 year, taxed at lower of 28% or ordinary rate).

§1250 unrecaptured depreciation (real estate): Max 25%.

Net Investment Income Tax: Additional 3.8% on investment income if MAGI >$200K ($250K MFJ).

Capital Losses

• Deductible against capital gains (short-term offsets short-term, long-term offsets long-term, net together)
• Personal-use property losses: NOT deductible (only gains taxable)
• $3,000 limit per year for net loss deduction against ordinary income ($1,500 MFS). Note: MFJ still only $3,000 (same as single) — a disadvantage for married couples.
• Excess losses carry forward indefinitely, retaining their short/long-term character
• Capital loss dies with the taxpayer: Unused capital loss carryforwards on a decedent's final return CANNOT pass to heirs/beneficiaries — permanently lost. (The loss may be claimed on the final return itself, but any unused carryforward expires.)

Related-Party Transactions (§267 / §709)

• Loss on sale to a related party is DISALLOWED (cannot deduct). Related parties = direct lineal family (spouse, siblings, ancestors, descendants); NOT aunts/uncles/nieces/nephews/cousins/stepchildren/stepparents/in-laws/ex-spouses. Also includes entities taxpayer controls >50%.
• Gain on later sale to non-related party: buyer recognizes gain, but only to the extent it exceeds the previously disallowed loss. If later sold at a loss, the related party's disallowed loss still cannot be used.
• In a multi-asset related-party sale (some gains, some losses): gains are taxable, losses cannot offset the gains.

Sale of Primary Residence (§121)

Exclude up to $250,000 gain ($500,000 MFJ) if:

• Owned AND used as principal residence for ≥2 of last 5 years
• Not used exclusion in last 2 years

Partial exclusion available for work change, health, or unforeseen circumstances.

Digital Assets

Digital assets (crypto, NFTs) are treated as property — sale/disposal generally produces capital gain/loss. Exchanging one digital asset for another is a taxable disposition (not a like-kind exchange). Report on Form 8949 / Schedule D.

Form Requirements

Wash Sale Rule

If you sell a security at a loss and buy the same or "substantially identical" security within 30 days before OR after the sale, the loss is disallowed. Instead, disallowed loss is added to basis of the replacement shares. Holding period of replacement includes holding period of old shares.