Taxes on long-term capital gains (on assets held for at least a year) are imposed at rates that correspond to pre-2018 brackets: a 0% rate for those whose income placed them in the regular 15% bracket or less (now in the 12% bracket), and 15% for taxpayers in higher brackets, except for those in the 39.6% bracket. The tax revision adopted in December 2018 ( P.L. 115-97 ) maintained the links to the income level corresponding to the rate brackets in prior law. Therefore, the tax rates on capital gains are affected only by changes in the deductions to arrive at taxable income and the use of a different method of indexing for inflation. Under the new law, the original 10% and 15% brackets are replaced by a single 12% rate bracket that ends at the same point as the end of the 15% bracket. There is no 39.6% bracket (the top rate is 37% and begins at a higher level than the top bracket under previous law). In 2017, the 39.6% bracket began with taxable income of $470,700 for joint returns and $418,400 for single returns. There is also an exclusion of $500,000 ($250,000 for single returns) for gains on home sales. Health reform legislation in 2010 provided for a tax of 3.8% (the same level as the Medicare rate of 3.8% on labor income) on high-income taxpayers on various forms of passive income, including capital gains. Under the final legislation, there was a maximum tax of 20% on capital gains held for a year. 4297 , adopted in 2006, extended these lower rates for two more years. 111-312 , enacted in 2010, extended the lower rates for an additional two years, through 2010. The American Taxpayer Relief Act of 2012, P.L. 112-240 , made these lower rates permanent except for very high incomes. The tax applies to passive income in excess of $250,000 for joint returns and $200,000 for single returns. Issues: Efficiency, Growth, Distribution, and Complexity

One argument in favor of reducing the capital gains tax is the lock-in effect. Arguments have also been made that lower gains taxes will increase economic growth and entrepreneurship. The benefit of the lower rates on capital gains alone would be more concentrated because a larger proportion of capital gains accrues to those with higher incomes, compared with dividends. Critics of lower capital gains taxes cite the contribution of preferential capital gains treatment to tax sheltering activities and complexity.
Taxes on long-term capital gains (on assets held for at least a year) are imposed at rates that correspond to pre-2018 brackets: a 0% rate for those whose income placed them in the regular 15% bracket or less (now in regular bracket of 12%), and 15% for taxpayers in higher brackets, except for those in the 39.6% bracket. The tax revision adopted in December 2018 (P.L. 115-97) maintained the links to the income level corresponding to the rate brackets in prior law. Therefore, the tax rates on capital gains are affected only by changes in the deductions to arrive at taxable income and the use of a different method of indexing for inflation. Under the new law, the original 10% and 15% brackets are replaced by a single 12% rate bracket that ends at the same point as the end of the 15% bracket. There is no 39.6% bracket (the top rate is 37% and begins at a higher level than the top bracket under previous law). In 2017, the 39.6% bracket began with taxable income of $470,700 for joint returns and $418,400 for single returns. There is also an exclusion of $500,000 ($250,000 for single returns) for gains on home sales.
Tax legislation in 1997 reduced capital gains taxes on several types of assets, imposing a 20% maximum tax rate on long-term gains, a rate temporarily reduced to 15% for 2003-2008, which was extended for two additional years in 2006. Legislation enacted in December 2010 extended the lower rates for an additional two years, thorough 2010. The American Taxpayer Relief Act of 2012 (P.L. 112-240) made the lower rates permanent except for very high-income taxpayers.
Health reform legislation in 2010 provided for a tax at Medicare rates of 3.8% on high-income taxpayers on various forms of passive income, including capital gains. The tax applies to passive income in excess of $250,000 for joint returns and $200,000 for single returns.
The capital gains tax had been a tax cut target since the 1986 Tax Reform Act treated capital gains as ordinary income. An argument for lower capital gains taxes is reduction of the lock-in effect. Some also believe that lower capital gains taxes will cost little compared to the benefits they bring and that lower taxes induce additional economic growth, although the magnitude of these potential effects is in some dispute. Others criticize lower capital gains taxes as benefitting higher-income individuals and express concerns about the budget effects, particularly in future years. Another criticism of lower rates is the possible role of a larger capital gains tax differential in encouraging tax sheltering activities and adding complexity to the tax law.