Capital Gains Explained – 2025 Tax Numbers (Part 4)

Financial Planning, Investment Management, Tax Planning

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Understanding capital gains is essential for anyone investing in assets like stocks, real estate, or mutual funds. In this post, we break down the basics of capital gains and highlight key opportunities for 2025. You can also watch the video above for a detailed explanation. Whether you prefer reading or watching, you’ll get the same valuable insights.

A capital gain occurs when you sell an asset for more than its purchase price. For example, if you buy a stock for $1,000 and sell it later for $1,500, the $500 profit is your capital gain. This concept applies to various assets, including:

  • Stocks and Bonds: Gains from selling securities at a higher price.
  • Real Estate: Profits from selling property, excluding primary residences under certain conditions.
  • Collectibles: Such as art, antiques, and rare coins.
  • Business Assets: Gains from selling business property or equipment.

Capital gains are a critical part of investment strategy, as they directly impact your net return and tax liability.

Unrealized vs. Realized Capital Gains

  • Unrealized Capital Gain: This is the increase in an asset’s value while you still own it. For instance, if the stock you purchased for $1,000 rises to $1,500 but you haven’t sold it, the $500 gain is unrealized. These gains are not taxed until they are realized.
  • Realized Capital Gain: This occurs when you sell the asset and lock in the profit. Using the same example, if you sell the stock for $1,500, the $500 becomes a realized gain and is subject to taxation.

Short-Term vs. Long-Term Capital Gains

The holding period of an asset determines whether the capital gain is classified as short-term or long-term:

  • Short-Term Gains: These are gains on assets held for one year or less. They are taxed at your ordinary income tax rate, which could be as high as 37% depending on your income bracket. Short-term gains can significantly reduce your net profit due to the higher tax rate.
  • Long-Term Gains: These are gains on assets held for more than one year. Long-term capital gains benefit from preferential tax rates of 0%, 15%, or 20%, depending on your taxable income. For 2025, the income thresholds for these rates are as follows:
    • 0% rate: Up to $48,350 (single) or $96,700 (married filing jointly).
    • 15% rate: Between $48,351 and $533,400 (single) or $96,701 and $600,050 (married filing jointly).
    • 20% rate: Above $533,400 (single) or $600,050 (married filing jointly).

Opportunities to Reduce Capital Gains Taxes

  1. Take Advantage of the 0% Tax Rate Many investors overlook the opportunity to pay no taxes on long-term capital gains if their income falls within the 0% bracket. For example, a retiree with a modest income could sell appreciated stocks and pay no capital gains tax, preserving more wealth for future needs.
  2. Step-Up in Cost Basis When you inherit an asset, its cost basis is adjusted to its fair market value at the time of the original owner’s death. This eliminates any capital gains on appreciation that occurred during the original owner’s lifetime. For example, if your parents bought a property for $100,000 and it’s worth $500,000 when you inherit it, the cost basis becomes $500,000. If you sell it for $510,000, you only owe taxes on the $10,000 gain. This is an important consideration for estate planning and wealth transfer strategies.
  3. Tax-Loss Harvesting Offset your capital gains by selling investments that have declined in value. The losses can be used to reduce gains dollar-for-dollar, and up to $3,000 of losses can be deducted from ordinary income each year. Any remaining losses can be carried forward to future tax years.

Important Reminder: Tax-Deferred Accounts

Capital gains and the step up in basis rules do not apply to tax-deferred accounts like traditional IRAs, 401(k)s, or annuities. Instead, all withdrawals from these accounts are taxed as ordinary income, regardless of the source of the gain. This distinction is crucial when planning your investment strategy, especially for retirement accounts.

Why Work with a Professional?

Navigating the complexities of capital gains taxes and identifying opportunities for tax savings can be overwhelming. A fiduciary financial advisor can help you:

  • Develop a tax-efficient investment strategy.
  • Plan asset sales to optimize tax outcomes.
  • Incorporate tax-loss harvesting into your portfolio.
  • Ensure your estate plan minimizes tax burdens for your heirs.

Managing your finances can be both empowering and overwhelming. The financial landscape is complicated and constantly evolving, requiring expertise in investments, tax strategies, retirement planning, and the discipline to navigate market fluctuations. Taking on this responsibility means staying ahead of new regulations, trends, and making sure all aspects of your financial life align with your long-term goals.

While saving on advisory fees can seem attractive, the time and effort required to effectively manage your financial future should not be underestimated. A misstep in asset allocation, tax strategy, or retirement planning can have long-lasting consequences that may be difficult to recover from.

As a fiduciary, I am dedicated to acting in your best interest—offering guidance and supporting you through every financial decision.

Think of it this way: you are the CEO of your financial life, and you hire me to be your CFO. While you retain the ultimate decision-making power, I am here to help guide your choices with expertise and care. Together, we create a financial strategy that empowers you to achieve your goals confidently.

If you’re ready to explore how I can help elevate your financial plan, I invite you to reach out. Together, we can build a roadmap that ensures your financial future is secure, optimized, and aligned with your vision.

Feel free to call, email, schedule time on my calendar, or even send me mail — I’m excited to connect with you!

Disclosure and Disclaimer: The information provided in this video is for educational and informational purposes only and should not be considered financial, tax, or legal advice. While every effort has been made to ensure the accuracy of the content at the time of publication, laws, regulations, and market conditions are subject to change. This information may not be current or applicable to your individual situation. This video is not a substitute for personalized advice from a qualified professional. Viewers are encouraged to consult with a licensed financial advisor, tax professional, or attorney to address their specific financial goals and circumstances before making any decisions. By watching this video, you assume all responsibility and risk for the use of the information provided. Neither the creator nor Brooks Wealth Management shall be held liable for any direct, indirect, or consequential losses arising out of the use or reliance on this material. This video may reference third-party content or websites for additional context. These references are provided for convenience and do not constitute an endorsement or guarantee of the accuracy or reliability of third-party information. Past performance is not indicative of future results. All investments involve risk, including the potential loss of principal. You should carefully consider your investment objectives, risk tolerance, and financial situation before making investment decisions. The viewing of this video does not create a client relationship between you and Brooks Wealth Management. For specific guidance tailored to your unique situation, please schedule a consultation.