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Long-term capital gains tax is the amount of money assessed on gains you reap when you sell an asset you have held for more than a year.

In the U.S., the federal and state governments tax different kinds of income in different ways. The money you make at work, for instance, is taxed at income tax rates. The money you make from investing is taxed at capital gains rates. How much capital gains you pay depends on how long you’ve held the investment, your income, and your filing status. With long-term capital gains tax, you’ll pay a 0%, 15%, or 20% tax.

What Is Capital Gains Tax?

Whether you’re filing taxes for the first time or have been doing so for years, capital gains tax might still be new to you. Here’s a quick primer.

•  Capital gains tax is a type of tax designed primarily as a way for governments to generate revenue by taxing the money you make when you invest.

•  These fees are taxes on investment income, which helps create a comprehensive tax system in which wealth generated through investing is taxed in addition to wealth generated by labor.

Capital gains tax may also be seen as a mechanism that promotes wealth equality because wealthy individuals often accrue more investment returns.

Recommended: What Is Income Tax Withholding and How Does It Work?

What’s Considered a Capital Gain?

A capital gain occurs when you buy an investment and sell it for more than you paid for it. The gain is the difference between the purchase price and the sale price. For example, if you buy a stock for $30 and sell it for $50, you’ve generated a capital gain of $20. You’ll only owe taxes on this gain.

You can also have a capital loss. Say you buy another stock for $30 and sell it for $15. In this case, you’ve generated a loss of $15, which is not subject to tax at all. In fact, you can use capital losses to offset your gains. Offset your $20 gain from the example above with your $15 loss, and you’ll have a net gain of $5. You may only owe taxes on that amount.

There are several common assets that may be subject to capital gains taxes including:

•  Stocks, bonds, and index funds

•  Commodities

•  Real estate investments (though you may qualify for certain exemptions on the sale of your primary residence.)

•  Business interests

•  Collectibles

Short-Term vs. Long-Term Capital Gains

There are two types of capital gains: short-term and long-term gains. You owe short-term capital gains tax on investments you’ve held for one year or less and sold for a profit. Short-term capital gains are taxed at the same rates as your ordinary income based on your tax bracket.

Depending on how much money you make (say, considerably more than the average salary in the U.S.), these rates can be relatively high.

You owe long-term capital gains tax on the profit you’ve made from the sale of investments you’ve owned for a year or more. The government taxes these at a preferential rate to encourage long-term investing.

Recommended: Credit Score Monitoring

What Is the Long-Term Capital Gains Tax Rate?

The long-term capital gains tax rate is 0%, 15%, or 20%, and it depends on your income and your filing status. The following rates are for long-term capital gains made in 2024.

Worth noting: The long-term capital gains tax 2025 shares the same rates, but the qualifying incomes in the brackets are slightly higher to reflect the impact of inflation.

How Capital Gains Taxes Work

To better understand how tax on long-term capital gains works, here’s an example:

•  Say you bought $5,000 worth of shares in a mutual fund.

•  You sell them 10 years later for $10,000, which means you have a $5,000 taxable gain.

•  If you make $70,000 per year and file a single tax return, your long-term capital gains tax rate will be 15%.

•  That means you’ll owe 0.15 x $5,000, or $750 in long-term capital gains tax on the amount your fund rose in value during the time you held it.

By knowing the amount you’ll need to pay, you can better prepare for and track your budget and outflow of funds at tax time.

Recommended: How Much Do You Have to Make to File Taxes?

Capital Gains Tax Strategies

There are several ways you can reduce capital gains taxes or otherwise use them to your advantage.

•  Hold your investments as long as you can: Hang on to investments for more than a year whenever possible to qualify for preferential long-term rates.

•  Use tax-advantaged accounts: When you can, invest inside of tax-advantaged accounts, such as 401(k)s and traditional and Roth IRAs. Money inside these accounts grows tax-deferred or tax-free. That means you don’t have to pay any capital gains when you sell investments in the account.

With 401(k)s and traditional IRAs, you’ll pay income tax on the withdrawals you make in retirement. But with Roth accounts, your withdrawals are tax-free.

•  Take advantage of the home exclusion: If you’re selling your primary residence at a profit, you may qualify to exclude up to $250,000 in capital gains if you’re a single filer, and $500,000 if you’re married and filing jointly. In general, to be eligible for this exclusion, you must have owned and used your home as your primary residence for a period that totals at least two years out of the five years prior to that date on which you sell the home.

•  Consider tax-loss harvesting: You’ve already learned that you can use capital losses to offset capital gains. Doing so strategically is known as tax-loss harvesting, and it may be a strategy worth considering as you prepare for tax season.

For example, you may sell certain investments at a loss when you know you are going to incur a large capital gains tax bill. Also, if your capital losses are greater than your gain, you may be able to offset up to $3,000 worth of income. If you’re unable to use your losses in a given year, you can roll them over to the next.

Strategies like tax-loss harvesting can be complicated, and it may be worth speaking with a tax professional to avoid making any tax filing mistakes.

Do You Pay State Taxes on Capital Gains?

In addition to federal capital gains tax, you may owe state tax as well. Not all states charge capital gains, but many (currently more than 40) do. Visit your state government website to find out if yours is one of those that does and what the current rates are.

The Takeaway

When you sell an investment you’ve held for more than a year, you may owe long-term capital gains tax. The rate you pay can vary with filing status and income, ranging from 0% to 15% to 20%. With a deeper understanding of how these taxes work, you can appropriately pay these taxes and possibly offset some of the amount. This can help you manage your money more effectively.

Take control of your finances with SoFi. With our financial insights and credit score monitoring tools, you can view all of your accounts in one convenient dashboard. From there, you can see your various balances, spending breakdowns, and credit score. Plus you can easily set up budgets and discover valuable financial insights — all at no cost.

FAQ

How much tax do I pay on long-term capital gains?

Depending on your income and filing status, you’ll pay 0%, 15%, or 20% in federal long-term capital gains taxes. You may also owe state capital gains taxes, depending on where you live.

What qualifies as long-term capital gains?

Long-term gains are money you have made from the sale of assets you’ve owned for longer than a year. It may apply to investments, real estate, and collectibles, among other assets.

How do I avoid paying capital gains tax?

You don’t have to pay capital gains taxes on the sale of investments inside of tax-advantaged accounts, such as 401(k)s and IRAs. You may also avoid paying capital gains tax if you offset your gains with capital losses.

What is a long-term capital gain example?

An example of a long-term capital gain might be the sale of a rental property that an investor has owned for 10 years. Say that investor bought the property for $200,000 and sold it for $325,000. That investment would have a capital gain of $125,000. Because the asset was held for more than a year, it qualifies as a long-term gain.

photo credit: iStock/LordHenriVoton
SoFi Relay offers users the ability to connect both SoFi accounts and external accounts using Plaid, Inc.’s service. When you use the service to connect an account, you authorize SoFi to obtain account information from any external accounts as set forth in SoFi’s Terms of Use. Based on your consent SoFi will also automatically provide some financial data received from the credit bureau for your visibility, without the need of you connecting additional accounts. SoFi assumes no responsibility for the timeliness, accuracy, deletion, non-delivery or failure to store any user data, loss of user data, communications, or personalization settings. You shall confirm the accuracy of Plaid data through sources independent of SoFi. The credit score is a VantageScore® based on TransUnion® (the “Processing Agent”) data.

*Terms and conditions apply. This offer is only available to new SoFi users without existing SoFi accounts. It is non-transferable. One offer per person. To receive the rewards points offer, you must successfully complete setting up Credit Score Monitoring. Rewards points may only be redeemed towards active SoFi accounts, such as your SoFi Checking or Savings account, subject to program terms that may be found here: SoFi Member Rewards Terms and Conditions. SoFi reserves the right to modify or discontinue this offer at any time without notice.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.


Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

SORL-Q125-018

OASDI tax on a paycheck is one of two taxes the IRS collects under the Federal Insurance Contributions Act (FICA). It stands for old-age, survivors, and disability insurance, and it’s designed to replace income lost due to retirement, disability, or death. Some people refer to it as Social Security tax. The other tax provides for Medicare. For most workers, these taxes are unavoidable.

What Is OASDI Tax?

OASDI is short for old-age, survivors, and disability insurance (you may hear it referred to as Social Security tax). It’s one of the types of taxes that many people in the U.S. pay. The OASDI program uses tax dollars to provide financial support to qualified people who are:

•   Retired

•   Disabled

•   Dependents of retired or disabled workers

•   Survivors of insured workers

As of December 2024, approximately 70 million Americans received benefits funded through the OASDI tax. The majority, 51.8 million, were retired workers who received an average benefit of $1,975 monthly.

Recommended: How Much Do You Have to Make to File Taxes?

Why Does OASDI Tax Appear on My Paycheck?

If you see OASDI on your pay stubs, it’s another way to indicate Social Security taxes, as noted above. Your employer might list it as FICA Social Security tax or FICA SS tax on your pay stub instead of OASDI tax.4

Your pay stub may show two totals for OASDI tax paid.

•   Current period. This is the amount of OASDI tax that was taken out of your paycheck for the current pay period.

•   Year-to–date. This amount is how much OASDI tax you’ve paid for the year, up to the current pay period.

You and your employer both pay Social Security tax, but your pay stub may only show your contributions.

How Does OASDI Tax Work?

OASDI tax is collected from workers to fund Social Security benefit programs for eligible people. The tax is assessed at a flat rate.

•   You pay 6.2% for Social Security tax.

•   Your employer pays 6.2%, for a combined 12.4% in OASDI tax.

OASDI tax is one part of FICA taxes; Medicare tax is the other. The current Medicare tax rate is 2.9%, which is split evenly, with 1.45% paid by the employee and the same amount contributed by the employer.

FICA tax deductions are automatic; you don’t have to remember to make those contributions or opt into them. Social Security and Medicare taxes paid are not eligible for a tax deduction. The rate is not dependent on your income tax withholding either. Every worker who’s required to pay OASDI tax pays the same percentage of their earnings.

(Tip: If you want to keep track of where your income goes besides taxes, a money tracker app can help you see your spending and saving. Check with your bank to see what tools they may offer.)

As you’re preparing for tax season, you should get a W-2 from your employer that shows all the taxes you paid throughout the year.

Is OASDI federal tax only? Yes, there’s no state tax equivalent.

Recommended: What Tax Bracket Am I In?

OASDI Tax for Self-Employed People

Being self-employed doesn’t let you off the hook for OASDI tax (nor for Medicare tax). The self-employed tax rate is 15.3%, which is split between 12.4% for OASDI and 2.9% for Medicare tax. Knowing that this amount needs to be paid can help you manage your online budget planning more effectively.

You’ll calculate self-employment tax using Schedule SE, Self-Employment Tax, when you file your Form 1040. You can deduct the employer-equivalent portion of self-employment tax when you calculate your adjusted gross income.

OASDI Limit 2024

The OASDI tax isn’t unlimited; the program caps the amount of earnings subject to taxation each year. Once you hit the wage base limit for the year, any additional earnings over that amount are not subject to the OASDI tax.

For 2024, the OASDI wage base limit was $168,600. That means the most workers would have paid in Social Security tax was $10,453.20. Self-employed individuals paid a maximum of $20,906.40.

OASDI Limit 2025

The OASDI tax limit for 2025 is $176,100. So the maximum tax employees will pay to Social Security is $10,918.20. If you’re self-employed, you’ll contribute no more than $21,836.40.

The wage base limit only applies to OASDI tax. There’s no limit on taxable earnings for the Medicare tax.

In fact, high-income earners may be subject to an additional Medicare tax of 0.9%. This tax applies to Medicare wages, self-employment income, and railroad retirement compensation that exceeds these amounts:

•   $250,000 (for married couples filing jointly)

•   $125,000 (for married couples filing separately)

•   $200,000 (for everyone else)

The additional Medicare tax funds the premium tax credit and other provisions of the Affordable Care Act (ACA).

Recommended: Credit Score Monitoring

Is OASDI Tax Mandatory?

OASDI tax is mandatory for most people, whether they work for an employer or are self-employed. Some exceptions exist for people who are:

•   Nonresidents and nonimmigrant aliens who hold A, D, F, G, or H visas

•   Members of certain religious groups who have a conscientious objection to receiving benefits from a private or public insurance plan

•   Self-employed and earn less than $400 annually

Generally, it’s difficult to avoid paying Social Security and Medicare taxes.

Is Social Security Tax the Same as the OASDI Tax?

Social Security tax usually means the same thing as OASDI tax. It’s money that comes out of your paycheck to fund benefit programs for elderly, retired, and disabled workers and their dependents or survivors.

If you’re looking at your pay stubs and see Social Security tax listed but no deduction for OASDI tax, you’re still paying it. Your employer just uses a different name for it. This may be a point you learn when you are paying taxes for the first time and delving into where your income goes.

OASDI Taxes for Nonresident U.S. Citizens

Living outside the U.S. doesn’t exempt you from federal tax obligations, including OASDI tax, as long as you maintain citizenship. You’ll still owe Social Security and Medicare tax if you work for an American employer, including for:

•   The federal government

•   Any individual who is a U.S. resident

•   A partnership where at least two-thirds of partners are U.S. residents

•   A trust whose trustees are all U.S. residents

•   A corporation organized under the laws of the United States, a U.S. state, or a U.S. territory

You’ll also pay OASDI tax if you work in a country that has a bilateral social security agreement with the U.S., and the agreement states that your earnings are subject to Social Security and Medicare taxes.

Recommended: Everything You Need to Know About Taxes on Investment Property

Does the OASDI Tax Cover Retirement Expenses?

OASDI tax is paid back to Americans in the form of Social Security benefits. Social Security represents around 31% of income for people aged 65 or older who use that money to cover retirement expenses, at least in part.

Keep in mind that paying into Social Security through OASDI tax is not the same as having retirement plan contributions deducted from your paychecks.

•   When you pay OASDI tax, the money goes into a pool that’s used to fund payments for people who are collecting benefits now.

•   Retirement plan contributions, meanwhile, go into a tax-advantaged account that only you can make withdrawals from according to the plan’s guidelines.

OASDI Tax Tips

OASDI tax is unavoidable for most people, whether you earn an average salary, entry-level pay, or are among the 1%. Here are a few tips for navigating the Social Security tax deductions you see noted on your paystubs.

•   Stay aware. The OASDI tax rate has largely held steady for decades, but the tax code is always subject to change. Staying clued in to changes to OASDI tax rates and wage base limits can help you estimate how much you’ll pay each year.

•   Check for accuracy. Errors can happen, and it’s possible your employer might report the wrong amount of OASDI tax on your paystubs or W-2s. (And you could get it wrong if you’re doing the calculations for self-employed tax; it’s one of several common tax filing mistakes). Reviewing your tax documents before you file can help you spot errors so you can request a correction.

•   Review your Social Security statements. The Social Security Administration provides statements showing your OASDI and Medicare taxes paid and your earnings history. You can use yours to estimate how much you might collect in Social Security benefits when you retire.

The Takeaway

OASDI tax on a paycheck indicates that you’re paying money into Social Security programs. You’ll pay this tax whether you work for an employer or yourself, with some exceptions. This information is helpful to know if you’re watching your budget and wondering where some of the money you earned went or thinking about how you’ll afford retirement.

Take control of your finances with SoFi. With our financial insights and credit score monitoring tools, you can view all of your accounts in one convenient dashboard. From there, you can see your various balances, spending breakdowns, and credit score. Plus you can easily set up budgets and discover valuable financial insights — all at no cost.

FAQ

Why is OASDI taken out of my paycheck?

OASDI tax is taken out of your paycheck to fund Social Security programs for those who have income loss due to retirement, disability, or death.

Is it mandatory to pay OASDi tax?

Certain types of taxes are unavoidable, and OASDI tax is typically one of them. While there are some exceptions to paying Social Security tax, only a minority of taxpayers qualify.

Can I get OASDI tax back?

You can benefit from the OASDI taxes you’ve paid when you collect benefits from Social Security. That includes Social Security retirement and disability benefits. It’s also possible that you could overpay OASDI tax for a particular time period. In that case, you may be able to get the overage paid back to you, either from your employer or by filing Form 843 with the Internal Revenue Service (IRS).

What is the difference between OASDI and Social Security?

OASDI tax and Social Security tax are the same thing; they are just different terms. Along with Medicare tax, OASDI tax is part of what you pay for FICA taxes.

Can I opt out of OASDI tax?

You could request an exemption from paying OASDI tax on religious grounds. You’ll need to be able to prove that you belong to a religious organization that conscientiously objects to receiving benefits from private or public insurance plans.

At what age is Social Security no longer taxed?

Social Security is taxable at any age, though whether it’s subject to tax depends on your income. Your benefits may be taxable if the total of one-half of your benefits plus all other income you receive exceeds the base amount for your filing status. The base amount is:

•   $25,000 for single filers, heads of household, and qualifying surviving spouses

•   $25,000 married couples who file separately and don’t live together

•   $32,000 married couples filing jointly

•   $0 for married couples who file separately but still live together.

About the author

Rebecca Lake

Rebecca Lake has been a finance writer for nearly a decade, specializing in personal finance, investing, and small business. She is a contributor at Forbes Advisor, SmartAsset, Investopedia, The Balance, MyBankTracker, MoneyRates and CreditCards.com. Read full bio.

SoFi Relay offers users the ability to connect both SoFi accounts and external accounts using Plaid, Inc.’s service. When you use the service to connect an account, you authorize SoFi to obtain account information from any external accounts as set forth in SoFi’s Terms of Use. Based on your consent SoFi will also automatically provide some financial data received from the credit bureau for your visibility, without the need of you connecting additional accounts. SoFi assumes no responsibility for the timeliness, accuracy, deletion, non-delivery or failure to store any user data, loss of user data, communications, or personalization settings. You shall confirm the accuracy of Plaid data through sources independent of SoFi. The credit score is a VantageScore® based on TransUnion® (the “Processing Agent”) data.

*Terms and conditions apply. This offer is only available to new SoFi users without existing SoFi accounts. It is non-transferable. One offer per person. To receive the rewards points offer, you must successfully complete setting up Credit Score Monitoring. Rewards points may only be redeemed towards active SoFi accounts, such as your SoFi Checking or Savings account, subject to program terms that may be found here: SoFi Member Rewards Terms and Conditions. SoFi reserves the right to modify or discontinue this offer at any time without notice.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.


Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

SORL-Q125-017

As part of his 2025 fiscal year budget proposal, former President Joe Biden suggested an unrealized capital gains tax for wealthy individuals. Specifically, the tax would have required taxpayers with a net worth above $100 million to pay a 25% minimum tax on unrealized capital gains.

Former Vice President Kamala Harris initially supported the move, which was dubbed a “billionaire minimum tax.” During her unsuccessful presidential campaign, the unrealized capital gains tax proposal was not addressed. The concept earned both support and criticism, partly due to misinformation about which taxpayers would be affected. Learn the details here.

What Are Unrealized Gains?

Capital gains are the profits you realize from the sale of an asset. More simply, it’s the difference between what you paid for the asset and what you sell it for.

If you’re still not sure, here’s another way to phrase unrealized capital gains tax meaning:

Unrealized capital gains are profits you haven’t pocketed yet because you haven’t sold the underlying asset.

Why does that matter? Because realized gains are taxable; unrealized gains are not.

You don’t need to report unrealized capital gains to the Internal Revenue Service, or IRS. Reporting is only necessary once you sell the underlying assets for a profit. You can, however, use the value of the assets you own to calculate your net worth and map your financial planning strategy. An online budget planner is a great place to get started with developing your money blueprint.

Recommended: How Much Do You Have to Make to File Taxes?

What Happens If Unrealized Gains Are Taxed?

If unrealized gains were taxed, the result might be a tax bill. That would have been the immediate impact for wealthy taxpayers who were subject to such a tax as it was proposed. If implemented, the tax would have targeted the top 0.01% of U.S. households who are in the very top tax bracket.

Someone subject to an unrealized capital gains tax might need to rethink their tax strategy. They might have to reconsider how they utilize various tax breaks, such as tax loss harvesting, to counterbalance any increases in what they owe.

Kamala Harris’s Unrealized Capital Gains Tax Proposal

While a “Kamala Harris unrealized capital gains tax” proposal made the rounds during the lead-up to the 2024 election, it was initially suggested by former President Biden. Vice President Harris signed off on the proposal, and it later became a discussion topic during her presidential campaign, although she did not publicly address it.

What are unrealized capital gains tax rates? The proposal would have imposed a 25% minimum income tax on unrealized capital gains for taxpayers with a net worth exceeding $100 million.

Other tax measures proposed during the Harris campaign included:

• Raising the long-term capital gains tax rate for realized gains and qualified dividends to 28% for individuals with taxable income above $1 million. (The top tax rate on these gains is currently 20%.)

• Increasing the top individual income tax to 39.6% on income above $400,000 for single filers and $450,000 for joint filers. (Currently the top tax rate is 37%.)

• Limiting like-kind 1031 exchanges to $500,000 in gains.

These types of taxes, as well as the unrealized capital gains tax, are designed to primarily impact high-income earners and wealthier taxpayers.

Assessing Tax Consequences

Taxing unrealized capital gains could have both positive and negative consequences for individuals and the economy as a whole. Hypothetically, the money generated through an unrealized capital gains tax would be used to fund the government budget, as are other taxes. Advocates of an unrealized capital gains tax suggest that it could help to redistribute wealth and ensure that the high net worth multimillionaires and billionaires pay their fair share.

Critics, on the other hand, have suggested that taxing unrealized capital gains would bring problems. Specifically, it could:

• Create administrative challenges for an already understaffed IRS

• Force taxpayers to sell their assets to cover the tax owed

• Disrupt capital markets

• Deplete the market value of real estate and other assets

• Discourage investments and innovation that help to drive the economy

During the 2024 election, there were questions raised about exactly whom the unrealized capital gains tax might affect. Claims that it would cost everyday Americans more in taxes made the rounds on social media. Those claims were proven false by a Penn Wharton Business Model analysis.

Recommended: Understanding Taxes on Investment Income

How Capital Gains Are Taxed Currently

Capital gains are subject to a different tax rate than income. Essentially, you’re taxed based on how long you own the asset before you sell. When tracking your money and net worth, keep the following in mind:

•  Assets held less than one year are subject to the short-term capital gains tax rate, which is the same as your ordinary income tax rate.
Assets held a year or longer are subject to the long-term capital gains tax rates, which are 0%, 15%, or 20%, based on your income.

•  The longer you hold assets, the longer you can defer paying taxes on capital gains under the current tax structure. That’s an incentive to use a buy-and-hold approach when making investments.

On the other hand, you could end up with a capital loss instead if you sell an asset for less than what you paid for it. Capital losses are deductible, up to certain limits. If you’re filing taxes for the first time with investment gains or losses, you may want to talk to a tax professional about how to minimize what you owe.

Recommended: How to Monitor Your Credit

Example of Tax Calculation of Unrealized Gains and Losses Currently

Calculating unrealized gains and losses on assets you own is fairly straightforward. You simply need to know what you paid for the asset and what it’s worth today. Here’s what the formula looks like:

So assume you buy 1,000 shares of stock for $1 each. Today, those shares are worth $5 each. Your unrealized gains would be $4,000.

Now, assume you bought the same shares for $5 each but their value has dropped to $1 per share. Now, you have an unrealized loss of $4,000.

Currently, unrealized capital gains don’t impact taxes in the U.S., and unrealized losses are not reported. In other words, it is not currently a tax filing mistake if you do not pay taxes on unrealized capital gains.

Recommended: What Is Income Tax Withholding and How Does It Work?

Example of Tax Calculation of Unrealized Gains and Losses After Proposed Unrealized Gains Tax

If an unrealized capital gains tax were to take hold, it would be difficult to calculate the amount an affected taxpayer might owe, since each tax situation is different.

Based on the proposal that was credited to Kamala Harris, you could assume that any unrealized gains a taxpayer had for the year would automatically be subject to a 25% minimum income tax. So if they bought 10,000 shares of stock in January for $500,000 and those same shares were worth $5 million in December, the 25% tax would apply to the increase in value (+$4.5 million).

That assumes two things:

• That they do not sell the shares, and

• Their net worth exceeds $100 million

Net worth is not static, and it can change as the value of someone’s assets changes. Someone might have an unrealized gain of significant value, but they might not be subject to the minimum tax as proposed if their net worth doesn’t cross the $100 million threshold prior to tax preparation season. That complication is yet another reason why an unrealized capital gains tax, if adopted, might be difficult to implement.

The Takeaway

During the 2024 presidential campaign, an unrealized capital gains tax proposal generated controversy, as there are advantages and disadvantages to making such a significant change to the tax code. As the topic of unrealized capital gains may make headlines in the future, it’s important to understand how buying and selling stocks or other assets for a gain or loss might affect your tax liability. This information can be a vital component of monitoring your finances.

Take control of your finances with SoFi. With our financial insights and credit score monitoring tools, you can view all of your accounts in one convenient dashboard. From there, you can see your various balances, spending breakdowns, and credit score. Plus you can easily set up budgets and discover valuable financial insights — all at no cost.

FAQ

Unrealized capital gains tax meaning?

An unrealized capital gains tax is a tax on gains from assets that you own but haven’t sold yet. Ordinarily, unrealized capital gains are not taxable; you’d owe tax only if you sell an asset for more than what you paid for it.

Does any country tax unrealized capital gains?

Denmark is one example of a country that taxes unrealized gains. Individuals who live in Denmark and own foreign properties are subject to an exit tax that applies to unrealized gains associated with increases in the property’s value. This tax on investment properties applies when the taxpayer departs from Denmark to live elsewhere. In 2024, the Denmark Tax Council proposed a 42% unrealized capital gains tax on crypto assets, which would take effect in 2026 if passed.

What is unrealized capital gains tax?

Unrealized capital gains tax is a charge for investment gains that’s assessed before an underlying asset is sold. Capital gains tax is typically assessed only when you sell an asset for more than the price you paid for it. Taxing unrealized gains would not rely on selling an asset to trigger taxes owed on it when it increases in value.

Which countries tax unrealized capital gains?

Denmark and Norway are two examples of countries that tax unrealized gains in the form of an exit tax. In Norway, unrealized gains on shares and ownership interests in Norwegian companies are taxed when you move to another country. The unrealized gains tax rate is 37.84%, though there are some exceptions to the rule.

How do you tax unrealized capital gains?

Taxing unrealized capital gains requires an assessment of an asset’s original purchase price or basis and its current fair market value. The unrealized capital gains tax proposal credited to Kamala Harris outlined a minimum 25% income tax on unrealized capital gains for individuals with a net worth exceeding $100 million. Other countries tax unrealized gains when you move to a different country and become a tax-paying resident there.

How does unrealized capital gains tax work?

Unrealized capital gains tax works by taxing the increase in value of assets you own but have yet to sell. Essentially, it’s a tax on paper profits, which can be problematic if you have assets with unstable or uncertain values.

About the author

Rebecca Lake

Rebecca Lake has been a finance writer for nearly a decade, specializing in personal finance, investing, and small business. She is a contributor at Forbes Advisor, SmartAsset, Investopedia, The Balance, MyBankTracker, MoneyRates and CreditCards.com. Read full bio.

SoFi Relay offers users the ability to connect both SoFi accounts and external accounts using Plaid, Inc.’s service. When you use the service to connect an account, you authorize SoFi to obtain account information from any external accounts as set forth in SoFi’s Terms of Use. Based on your consent SoFi will also automatically provide some financial data received from the credit bureau for your visibility, without the need of you connecting additional accounts. SoFi assumes no responsibility for the timeliness, accuracy, deletion, non-delivery or failure to store any user data, loss of user data, communications, or personalization settings. You shall confirm the accuracy of Plaid data through sources independent of SoFi. The credit score is a VantageScore® based on TransUnion® (the “Processing Agent”) data.

*Terms and conditions apply. This offer is only available to new SoFi users without existing SoFi accounts. It is non-transferable. One offer per person. To receive the rewards points offer, you must successfully complete setting up Credit Score Monitoring. Rewards points may only be redeemed towards active SoFi accounts, such as your SoFi Checking or Savings account, subject to program terms that may be found here: SoFi Member Rewards Terms and Conditions. SoFi reserves the right to modify or discontinue this offer at any time without notice.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.


Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

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Your tax bracket reflects the rate you’re taxed, based on your income, and there are currently seven of these ranges. The U.S. uses a progressive tax system; as income rises, so does the tax rate that applies to each layer of income reported on your return.1

If you are wondering what the tax brackets for 2024 are, that’s an important question, as the income ranges used to determine your bracket are adjusted periodically by the Internal Revenue Service (IRS) to reflect the impact of inflation.

The tax brackets 2024 filers are assigned to correspond to these federal income tax rates: 10%, 12%, 22%, 24%, 32%, 35%, and 37%. Income ranges used for 2024 tax brackets apply to returns filed in 2025.

2024 Tax Brackets

To find out what tax bracket you are in, check the following table. It illustrates 2024 federal tax brackets and tax rates, based on your filing status.

Recommended: How Much Do You Have to Make to File Taxes?

2025 Tax Brackets

While tax rates for the brackets are the same for 2024 and 2025, the income ranges used to determine tax brackets differ. Here’s a look at 2025 tax brackets so you can see how they compare to federal tax brackets in 2024. The amounts have been adjusted to reflect the impact of inflation.

Knowing how tax brackets work can help you gain a better picture of your income (gross vs. net), which impacts your spending and your savings. This can help you keep an eye on your budget (using a money tracker can be a smart move, too). This tax bracket knowledge may be especially important for self-employed people who pay taxes quarterly vs. having an employer withhold taxes for them.

The federal government uses a progressive tax system to determine how much individual taxpayers owe. This type of system functions by taking a larger percentage of income from higher earners than lower earners, based on the concept of ability to pay.

Tax brackets assign a tax rate to a specific range of income. Each income range is subject to a different tax rate ranging from 10% to 37% for the 2024 and 2025 tax years. There are seven tax rates, as mentioned, with individual tax brackets for five filing statuses:

•  Single

•  Married filing jointly

•  Married filing separately

•  Head of household

•  Qualifying widow(er)

Some overlap exists across different filing statuses. For instance, single filers and married couples who file separately have identical tax bracket income ranges up to the 35% tax rate. At that point, the range of incomes diverges.

What are the income tax brackets for 2024 at the state level? It varies.

Forty-three states and the District of Columbia assess an income tax. Among them, 14 states use a flat tax rate that applies to all income levels, while the remaining 29 use graduated tax rates assigned to different tax brackets.

Also, note that there are different types of taxes. Tax brackets and tax rates for individuals are not the same as tax rates for corporations.

If you need help tracking your money on an everyday basis (not just at tax time), you might try an online budget planner tool.

What Is a Marginal Tax Rate?

A marginal tax rate is the tax rate you pay on the last dollar of income earned. In other words, it reflects the highest tax bracket you’re assigned to based on your income and filing status.

So if you’re looking at 2024 tax brackets, a single filer reporting income of $100,500 would have a marginal tax rate of 22%. That represents the upper limit of what they’d pay in taxes but not what they would pay on their entire earnings (more on this below).

Note that marginal tax rates (and tax bracket income ranges) apply to all your taxable income for the year. Taxable income is any income you receive that is not specifically exempted from taxation by law, including:

•  Wages (which are typically paid on an hourly basis)

•  Salaries (which are typically paid in equal increments on a regular basis, such as biweekly)

•  Tips

•  Business income

•  Royalties

•  Fringe benefits

•  Self-employment earnings

•  Side hustle or gig work earnings

•  Interest earned on savings accounts

•  Earnings from the sale of virtual currencies

If you rent out a home you own, you’re also subject to taxes on investment property. It’s important to report all your income to the IRS, because negative consequences can follow if you don’t. Underreporting income is one of the biggest tax filing mistakes to avoid.

What Is an Effective Tax Rate?

Your effective tax rate is the percentage of tax owed on your taxable income for the year. It reflects the average tax rate you pay, based on how each layer of your income is taxed at different brackets. This concept may be confusing, especially if it’s the first time you are filing taxes.

It’s not unusual for your marginal tax rate and effective tax rate to differ. For example, a single filer with no dependents and taxable income of $100,500 (which is above the average salary in the U.S.) would have a 22% marginal tax rate for 2024.

But that would apply to the income that falls into the $47,151 to $100,525 bracket for their income. The first $47,150 would be taxed at a lower rate (the first $11,600 at 10%, and the amount between $11,601 and $47,150 at 12%). Their effective tax rate would be 16.2% after accounting for the standard deduction. The standard deduction is a set amount you subtract from your taxable income, based on your filing status.

How to Reduce Taxes Owed

Landing in a lower tax bracket can help trim down what you owe. Here are a few strategies to reduce the amount of tax you have to pay.

•  Claim credits. Tax credits reduce your taxes owed on a dollar-for-dollar basis. So if you owe $500 in taxes you might use a $500 tax credit to cancel that out. Some of the most common tax credits include the Earned Income Tax Credit (EITC), the Child Tax Credit (CTC), and the Retirement Savers’ Credit.

•  Use deductions. Deductions reduce your taxable income, which could automatically put you into a lower tax bracket. The IRS allows you to claim deductions for a variety of expenses, including student loan interest, interest on home equity loans or lines of credit if you use your loan for home improvement, traditional IRA contributions, and charitable donations.

•  Check your withholding. Your withholding is the amount of money you tell your employer to hold back for taxes. If you always owe taxes, you may need to adjust your withholding to make sure you’re paying the right amount each year.

•  Defer compensation. This is another way to reduce taxes for the year. If you’re a freelancer, for example, you might hold off on invoicing clients in December and wait until January so you can carry that income over to the next year’s tax return.

If you’re preparing for tax season, talking to a financial advisor or tax professional can help you figure out the best approach to reduce what you owe, based on your situation.

Recommended: How to Monitor Your Credit

The Takeaway

Understanding how the federal tax brackets work can help you prepare your return with minimal stress. Taxes in the U.S. work on a progressive basis vs. a flat rate, and the more you earn, the more you typically pay. Knowing how the system operates and at what rate you are being taxed is an important part of managing your money and growing your wealth.

Take control of your finances with SoFi. With our financial insights and credit score monitoring tools, you can view all of your accounts in one convenient dashboard. From there, you can see your various balances, spending breakdowns, and credit score. Plus you can easily set up budgets and discover valuable financial insights — all at no cost.

FAQ

What are the 2024 federal income tax brackets?

The 2024 tax brackets assign seven tax rates based on your income and filing status. The tax rates for 2024 include 10%, 12%, 22%, 24%, 32%, 35%, and 37%, and the same levels are expected for 2025. The federal tax brackets for 2024 apply to returns filed in 2025. Your income plays a key role in determining at what percentage you are taxed.

What is the list of federal tax brackets?

The IRS maintains a list of tax rates and federal tax brackets for 2024, 2025 (both of which are 10%, 12%, 22%, 24%, 32%, 35%, and 37%), and beyond. If you know your taxable income for the year, you can estimate your marginal tax rate. You’ll need to calculate your taxes owed after deductions and credits to find your effective tax rate.

How do I know what tax bracket I am in?

Your income and filing status determine your tax bracket. Calculating your taxable income for the year can help you figure out which tax bracket you fall into.

How much federal tax should I pay on $50,000?

Assuming you’re a single filer with $50,000 in taxable income, you’d pay these tax rates: 10% on the first $11,600 and 12% on the remaining 38,400 ($50,000 – $11,600). In total, your estimated federal tax due would be about $5,700.

How much federal tax would you pay on $100,000?

Assuming you’re a single filer with $100,000 in taxable income, you’d pay 10% on $11,600; 12% on $35,550 ($47,150 – $11,600); and 22% on $38,250 ($85,400 – $47,150). That would equal $13,841.

What tax bracket is $60,000 for married filing jointly?

Based on 2024 tax brackets, a married couple filing a joint return with $60,000 in taxable income would be in the 12% tax bracket, with the first $23,200 of their income taxed at 10%.

About the author

Rebecca Lake

Rebecca Lake has been a finance writer for nearly a decade, specializing in personal finance, investing, and small business. She is a contributor at Forbes Advisor, SmartAsset, Investopedia, The Balance, MyBankTracker, MoneyRates and CreditCards.com. Read full bio.

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Most physicians can expect to earn a good living once they complete their education and training. But by the time they graduate and start their first job, many new doctors are also likely to find themselves deep in student loan debt.

That debt may make it difficult for physicians to qualify for a conventional home mortgage — even though they have a promising financial future. That’s where home loans for doctors come in. Some lenders offer special mortgages called physician loans or doctor mortgage loans. These loans have terms designed to meet the unique needs of newcomers to this profession. Note: SoFi does not offer physician mortgages, but it does offer home mortgage loans with a low down payment for first-time homebuyers.

Read on for a look at how physician mortgages work, some pros and cons, and what it can take to qualify.

What Are Physician Mortgage Loans?

Physician mortgage loans are private mortgages designed specifically to meet the needs of doctors, dentists, medical residents, and fellows. The terms and benefits of these home loans for medical doctors can vary from one lender to the next. But they generally offer more generous terms and/or looser qualifying requirements than conventional home loans. This can make borrowing easier for physicians who have a high income potential but may be struggling with student loan debt or haven’t been able to set aside enough for a down payment.

How Physician Mortgage Loans Differ from Traditional Loans

Doctor loans are a type of nonconforming loan, which means they aren’t backed by the federal government like FHA loans, and they aren’t bound by the same Fannie Mae and Freddie Mac standards as conventional loans. Here are a few important differences you can expect to find with this type of mortgage vs. a conventional loan:

Recommended: Different Types of Mortgage Loans

Low or No Down Payment

Most lenders require at least a 3% to 5% down payment for a conventional mortgage, with the lowest rates typically available to first-time homebuyers. Lenders who offer physician mortgages may not require any money down. (Or the down payment amount required may be very low.)

No Private Mortgage Insurance (PMI)

With a conventional loan, private mortgage insurance, which is meant to protect the lender in case of a default, is usually added to borrowers’ monthly payments until they reach 20% equity in their home. Though PMI rates vary, they typically range from 0.50% to 2% of the loan amount. But doctor loans don’t require PMI, even though the borrower may not make any down payment.

Flexible Debt-to-Income (DTI) Ratio Requirements

As part of their underwriting, lenders typically calculate a borrower’s DTI ratio (all monthly debt payments ÷ gross monthly income = DTI). For conventional mortgages, they usually require a DTI ratio below 45%, although some require the DTI to be below 36%. But lenders who provide physician loans may look at a borrower’s student loans (which they expect to be high) as separate from other debt and not include them in the DTI, or they may include the student loans but set a higher DTI limit.

You may want to keep in mind, though, that just because you can get a loan with a higher DTI ratio doesn’t mean you should. A home affordability calculator can help you see what might fit into your budget and a mortgage calculator can show you what your monthly payments would look like at different interest rates.

It might also be helpful to talk to a financial advisor about how much house you can really afford, and what the costs of homeownership could mean for your overall financial well-being.

Looser Employment and Salary Requirements

Proving that you have stable employment as well as an adequate income is usually part of qualifying for a conventional loan. (Lenders generally like to see at least two years of work history.) Employment requirements may vary with a doctor loan, but lenders who offer these types of mortgages typically understand that a new doctor could be working as an intern, resident, or fellow, and may not be earning as much starting out as they will take home even just a few years into their career. (Borrowers still can expect to provide paperwork that documents their salary and employment, however, along with their medical license.)

Recommended: Understanding Mortgage Basics

Benefits of Physician Mortgage Loans

If you’re eager to get into your own home once you wrap up medical school, a physician home loan may make that possible — and less expensive. Avoiding PMI on a new home could save you hundreds or even thousands of dollars a year, for example. And if you don’t have to make a down payment, you can use that money for other expenses.

Lenders also may offer higher loan amounts with a physician loan than with other loan types. And though some lenders offer doctor loans with fixed rates, most come with variable interest rates, so you can expect to start out with a lower, more affordable interest rate when you begin making payments. (That means you’ll have an adjustable rate after a fixed introductory period, so your monthly payments could change. But if the rate becomes unmanageable down the road, you can look at refinancing to a conventional loan with a more competitive mortgage rate.)

How to Qualify for a Physician Mortgage Loan

Though the underwriting requirements may be more relaxed for doctor loans, you should be prepared to provide the following:

•   Proof of identity (this might include your driver’s license, Social Security number, or other documentation)

•   Proof of employment and income (you may be able to use an employment contract if you don’t yet have a W-2, pay stubs, or similar documents)

•   Documentation of assets and debts

•   A contract for your home purchase, including the purchase price

•   Information about the type of home you’re purchasing (condo, single-family home, etc.)

•   Proof of a medical degree (M.D., D.O., D.D.S., etc.) that meets the lender’s requirements

Other parts of the mortgage process — from determining what you can afford to choosing mortgage terms to closing on the deal — will likely be similar to what you’d expect if you were applying for just about any type of loan.

The Takeaway

If you’re finally starting your career as a doctor and you’re wondering if student debt or minimal savings could keep you from reaching the goal of home ownership — despite your income potential — a physician home loan may be an option worth researching.

Because these special loans typically don’t require a down payment or private mortgage insurance payments, and the eligibility requirements are often less strict than for conventional loans, doctors may not have to wait until they’re on firmer financial footing to purchase a home.

Of course, you’ll want to compare all the pros and cons of a physician mortgage — or any home loan. Buying a home is a big decision, and you’ll likely want to balance your eagerness to reach this milestone with your ability to keep pace with your mortgage payments and your debt payments, as well as other expenses.

Looking for an affordable option for a home mortgage loan? SoFi can help: We offer low down payments (as little as 3% - 5%*) with our competitive and flexible home mortgage loans. Plus, applying is extra convenient: It's online, with access to one-on-one help.

FAQ

What credit score do I need to get a physician mortgage loan?

A credit score of at least 700 or 720 may be required to get a physician loan, although some lenders may accept a lower credit score. Each lender has its own criteria.

Are physician mortgage loans available for residents and fellows?

Employment requirements may vary, but lenders who offer these types of loans typically understand that a new doctor could be working as an intern, resident, or fellow.

How do interest rates compare for physician mortgage loans vs. conventional loans?

Doctor’s mortgage loans generally come with a variable interest rate. After a fixed introductory period, your payments could go up or down, depending on several factors. With conventional mortgages, you may have a wider range of interest rate types to choose from.

Photo credit: iStock/nortonrsx

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