Capital Gains Tax - Real Estate

Capital gains tax is levied on profit from the sale of property or an investment. A typical capital asset includes stocks, bonds, digital assets, jewelry, coin collections, and real estate.

There are two types of realized capital gains:

• Short-term capital gains: Assets held for one year or less, typically taxed at the same rate as ordinary income.
• Long-term capital gains: Assets held over a year receive more favorable federal tax treatment.

The federal capital gains tax is generally lower than the comparable income tax rate. The long-term capital gains federal tax rates for 2025 are 0%, 15%, or 20% of the profit, depending on the filer’s income. 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.

Most U.S. states also levy their own capital gains tax. Arkansas taxes capital gains at the same rate as income, allowing taxpayers to deduct 50% of long-term capital gains from their tax liability. 

A different standard applies to real estate capital gains if you sell your principal residence. $250,000 of an individual’s capital gains on the sale of a home are excluded from taxable income, increasing to $500,000 for those who are married and filing jointly. The seller must have owned and lived in the home for two years or more during the five years ending on the date of the sale to qualify for this tax break.

Investors who own real estate often claim depreciation deductions. The depreciation deduction reduces the amount you’re considered to have paid for the property. That can, in turn, increase your taxable capital gain if you sell.

To decrease or avoid capital gains tax.

• Hold your investment for more than one year.
• Deduct investment losses from your investment profits. You can claim $3,000 in losses a year.
• Keep track of any qualifying expenses.
• If you have made a like-kind exchange for an investment property, you may be exempt from paying capital gains tax on it.