The One Big Beautiful Bill Act expands the 0% capital gains tax bracket: What investors need to know
Editorial staff, J.P. Morgan Wealth Management
- Capital gains are profits you earn from selling assets like stocks or bonds.
- The IRS taxes capital gains differently depending on your holding period, income level and filing status.
- The One Big Beautiful Bill Act has expanded the number of taxpayers that may qualify for the 0% capital gains tax bracket.
When you sell an investment and earn a profit, the IRS may tax those earnings as capital gains. If you meet certain criteria, however, you could pay 0% in federal taxes on those earnings.
Due to expanded provisions in the One Big Beautiful Bill Act (OBBBA), more taxpayers could qualify to keep their full gains. Knowing this – and understanding how capital gains work in general – may help you make choices about when to buy, hold or sell your investments.
How capital gains are taxed in the U.S.
The IRS taxes capital gains differently depending on both how long you’ve owned the asset and your income level. Short-term gains are taxed at higher rates because they’re treated as ordinary income, while long-term gains receive more favorable treatment. This structure is designed to encourage long-term investing.
Short-term capital gains are taxed the same as your ordinary income tax bracket, which can range from 10% to 37%. So if you’re currently in the 24% federal income tax bracket and sell stock after holding it for six months, your gain from the stock sale will also be taxed at 24%, assuming you are still in the 24% tax bracket after taking into account the gain from the stock sale. Depending on your total income and the amount of the gain, short-term gains can push you into a higher tax bracket and increase your overall tax bill.
For long-term capital gains, the tax rate is capped at 0%, 15% or 20% depending on your income level and filing status. Some high-income investors may also owe an extra 3.8% net investment income tax (NIIT) on top of these rates.
Factors affecting capital gains tax
Several factors determine how much tax you’ll pay on capital gains. Let’s consider them:
- Holding period: If you hold the asset for a year or less, any profits are considered short-term gains and taxed as ordinary income. If you hold the asset for more than a year, though, any profits you earn from selling it may qualify for lower long-term tax rates.
- Income level: Your taxable income determines your capital gains tax bracket. Those with lower incomes may qualify for the 0% rate, while those with higher incomes fall into the 15% or 20% brackets.
- Filing status: How you file your taxes – single, married filing jointly, head of household or married filing separately – can affect the income thresholds for each tax bracket.
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The 0% capital gains tax bracket, explained
The 0% capital gains tax bracket allows certain taxpayers to avoid paying federal taxes on long-term investment gains. This applies only to long-term capital gains, however.
For tax year 2025, the IRS set the following income thresholds for the 0% rate on long-term capital gains. These thresholds are based on taxable income, which is your income minus deductions and exemptions.
- Single filers: Up to $48,350
- Married filing jointly: Up to $96,700
- Head of household: Up to $64,750
How the 0% rate applies to long-term capital gains
If your taxable income falls below these thresholds, you won’t owe any federal tax on long-term capital gains. Note, however, that any profits you receive also count toward your taxable income. So, for example, let’s say you’re a single filer who earns $40,000 in taxable income. If you sell stock for a $2,000 long-term gain, you won’t pay anything in federal gains tax. If the sale pushes your income above the $48,350 cutoff, though, the portion that’s above the limit will be taxed at 15%.
The good news is that deductions can also work in your favor to lower your taxable income. For example, many Americans use the standard deduction, which adjusts for inflation. In some cases, that deduction alone is enough to pull a household’s income below the 0% threshold, making long-term gains tax-free.
How the 0% capital gains tax bracket was expanded under the OBBBA
Signed into law on July 4, 2025, the OBBBA has a substantial impact on federal taxes and deductions. While it doesn’t change the income thresholds for the 0% long-term capital gains rate, it adds deductions that make it easier for taxpayers to qualify. Here are some of the legislation’s key changes:
- Deductions for seniors: Individuals 65 and older can take advantage of a $6,000 senior deduction on top of the existing standard or itemized deduction. Note, however, that this additional deduction phases out for single filers with a modified adjusted gross income (MAGI) of more than $75,000 and for joint filers with a MAGI of more than $150,000.
- Higher standard deduction amounts: The bill also makes the doubled standard deduction (introduced by the Tax Cuts and Jobs Act in late 2017) permanent, having slightly increased it for 2025: Single filers or married couples filing separately can now claim $15,750, heads of household can claim $23,625 and married couples filing jointly can claim $31,500.
- SALT deduction cap increase: Finally, the state and local tax (SALT) deduction cap has been raised from $10,000 to $40,000 for taxpayers with incomes under $500,000. This can help taxpayers in high-tax states reduce their taxable income.
Who qualifies for the 0% capital gains tax rate?
Not everyone can take advantage of the 0% capital gains bracket because it’s limited to taxpayers below certain income thresholds.
Retirees in particular may be in a position to benefit, since they’re not working and therefore may have a lower taxable income. Once deductions are applied, these individuals might fall comfortably into the 0% capital gains bracket, allowing them to sell investments to supplement their retirement income without owing capital gains tax.
The bracket also provides relief for individuals and families with lower annual incomes. Even if lower-income households sell investments for a profit of several thousand dollars, those gains are taxed at 0% as long as their total taxable income remains below the cutoff. This may make it easier for households to build and preserve wealth without losing a portion of their earnings to taxes. Students and part-time earners may be able to benefit as well, since their income may be more limited.
The bottom line
Because of changes made possible by the One Big Beautiful Bill Act, more households may be able to take advantage of tax-free investment gains. Speaking to a tax professional can help you understand how taxable income is calculated and help determine if you can benefit from these changes.
Frequently asked questions about capital gains and the 0% capital gains tax bracket
A capital gain is the profit you realize for selling a capital asset for more than you originally paid for it. For example, if you purchase stock for $1,000 and later sell it for $1,500, that $500 profit is considered a capital gain. Capital gains don’t apply just to stocks, though; in fact, they can apply to other assets you own, including businesses and real estate.
Capital gains increase your taxable income, although certain exemptions or exclusions may apply. In comparison, capital losses can offset gains and, in some cases, reduce your taxable income up to an annual limit.
The IRS divides capital gains into two categories: short term and long term. If you’ve held the asset for a year or less, it’s a short-term gain. Long-term gains are profits earned on assets held for more than a year.
As an example, let’s say you bought a stock in June 2024 and sold it in May 2025; any profits you earned from the sale would be considered short-term gains. If you waited until July 2025 to sell, though, the gain would be considered long term and could qualify for lower tax rates.
A capital asset is generally any property you own, including investments, real estate and personal-use property. However, certain assets are specifically excluded from the definition of capital asset, such as inventory, depreciable property used in a business and accounts receivable. Here are some of the major types of capital assets:
- Financial assets: Your financial assets held as investments – including stocks, bonds, mutual funds and other financial assets – are capital assets.
- Real estate: Any homes you own for personal or investment purposes are capital assets.
- Businesses: Any businesses you own are considered capital assets, regardless of their size.
- Intellectual property: If you wrote a book or designed a software program, that could also be considered a capital asset.
Yes, if your taxable income stays within the IRS’s 0% capital gains bracket, you can sell stocks and other long-term assets tax-free. If your gains push you above the threshold, though, the excess will be taxed at 15%.
No, short-term capital gains are always taxed as ordinary income within your regular tax bracket, which can range from 10% to 37%. The 0% rate applies only to long-term gains.
Dividends – particularly qualified dividends – are included in your taxable income and can affect whether you stay within the 0% bracket. If dividends push your income above the threshold, some of your gains may be taxed at 15% or even 20%. Qualified dividends are subject to tax at the same rates as long-term capital gains, meaning that qualified dividends are also eligible for the 0% rate for qualifying taxpayers.
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Editorial staff, J.P. Morgan Wealth Management
