Capital gains tax for companies versus individuals comes down to two very different systems. Individuals pay 0%, 15%, or 20% on long-term gains depending on income, plus a possible 3.8% surtax at higher incomes. C-corporations pay a flat 21% on every capital gain, with no discount for holding an asset longer. That sounds like corporations always pay more, but the real comparison depends on the holding period, the type of asset, whether the entity is actually a C-corporation or a pass-through, and what happens when corporate profits reach shareholders.
How Individuals Are Taxed
For an individual, the holding period is what matters most. Sell an asset you owned for a year or less and the profit is a short-term capital gain, taxed at your ordinary income rate, which tops out at 37%. Hold it longer than a year and the gain qualifies as long-term, taxed at a preferential 0%, 15%, or 20% based on taxable income and filing status.1Internal Revenue Service. Topic No. 409, Capital Gains and Losses2Office of the Law Revision Counsel. 26 USC 1 – Tax Imposed
The gap can be huge. A top-bracket taxpayer pays up to 37% on a short-term gain but only 20% on a long-term gain from the same asset. That spread is a deliberate reward for holding investments, and it shapes when individuals choose to sell.
How C-Corporations Are Taxed
C-corporations pay a flat 21% on all taxable income, and capital gains are just part of that income.3Office of the Law Revision Counsel. 26 USC 11 – Tax Imposed There is no short-term versus long-term distinction at the corporate level. A corporation that sells stock two days after buying it and a corporation that sells a building held for twenty years both pay 21% on the profit.
That cuts both ways. On a short-term gain, 21% looks generous compared to a 37% individual rate. On a long-term gain, the corporation loses out because it cannot reach the 0%, 15%, or 20% rates available to individuals. A C-corporation will never pay more than 21% on a capital gain, and it will never pay less.
The 3.8% Net Investment Income Tax
Higher-earning individuals owe an additional 3.8% surtax on capital gains that people often leave out of the comparison. The Net Investment Income Tax applies when modified adjusted gross income exceeds $200,000 for single filers or $250,000 for joint filers, and those thresholds are not indexed for inflation.4Office of the Law Revision Counsel. 26 USC 1411 – Imposition of Tax5Internal Revenue Service. Questions and Answers on the Net Investment Income Tax
For a high-income individual, the effective top rate on long-term gains becomes 23.8% (20% plus 3.8%), and the top rate on short-term gains reaches 40.8%. C-corporations do not pay this surtax at all. The statute applies it only to individuals, estates, and trusts.
The practical effect is that the gap between corporate and individual taxation narrows sharply for wealthy investors. At 23.8%, the individual long-term rate sits just 2.8 points above the 21% corporate rate, before any distribution tax enters the picture.
Special Rates for Specific Assets
Not every long-term gain gets the 0/15/20% treatment. Two categories flip the usual comparison.
Depreciated real estate produces unrecaptured gain. When you sell a rental property for more than its depreciated value, the portion of the gain tied to prior depreciation deductions is taxed at a maximum 25% for individuals.6Office of the Law Revision Counsel. 26 USC 1 – Tax Imposed – Section: Maximum Capital Gains Rate A corporation selling the same building pays 21% on that portion.
Collectibles like art, coins, antiques, and precious metals face a maximum 28% rate for individuals on long-term gains. A corporation holding the same collection pays 21%. On the surface, holding these assets inside a C-corporation looks appealing, but the double-taxation problem at distribution usually eats the advantage.
Qualified Small Business Stock
One benefit runs the other way and only individuals can use it. Sellers of qualified small business stock can exclude a large share of the gain from federal tax entirely. For stock acquired after 2010 and held long enough, the exclusion can reach 100%, meaning zero federal tax on gains up to the greater of $10 million or ten times adjusted basis. After changes enacted in 2025, the holding period for newly acquired stock starts at three years, with the exclusion scaling from 50% at three years to 100% at five.7Office of the Law Revision Counsel. 26 US Code 1202 – Partial Exclusion for Gain From Certain Small Business Stock Corporations cannot use the exclusion.
Capital Losses Work Very Differently
The loss side of the comparison is where the two systems diverge most sharply.
Individuals can use capital losses to offset capital gains dollar for dollar. If losses exceed gains, up to $3,000 of the excess can be deducted against ordinary income like wages, or $1,500 if married filing separately.8Office of the Law Revision Counsel. 26 USC 1211 – Limitation on Capital Losses Anything left carries forward with no expiration date. A loss from 2026 can sit on the books indefinitely until it is used.9Office of the Law Revision Counsel. 26 US Code 1212 – Capital Loss Carrybacks and Carryovers
Corporations are more restricted. A corporation can only use capital losses to offset capital gains and cannot deduct them against ordinary business income at all. In exchange, a corporate capital loss can be carried back to the three preceding tax years to claim refunds on gains already taxed, then carried forward up to five years. If the corporation does not generate enough capital gains within that window, the unused loss expires.
That five-year clock is where corporate loss planning gets tight. An individual sitting on a large capital loss can wait indefinitely for the right year to realize gains against it. A corporation watching the clock may feel pressure to sell assets at a suboptimal time just to use the deduction before it disappears.
Most “Companies” Are Pass-Throughs, Not C-Corps
The corporate-versus-individual comparison assumes the company is a C-corporation. Most small and mid-sized businesses are not. S-corporations, LLCs, and partnerships are pass-through entities: the business itself does not pay federal income tax on capital gains. Gains flow through to the owners’ personal returns and are taxed at individual rates.10Internal Revenue Service. S Corporations
An S-corporation that sells an appreciated asset passes the gain to its shareholders, who pay 0%, 15%, or 20% depending on income and holding period. The gain is taxed once, not twice. If you are comparing “company vs. individual” and the company is an LLC, S-corp, or partnership, the capital gains treatment is effectively the same as individual treatment. The double-taxation problem discussed below applies only to C-corporations.
Double Taxation on Corporate Distributions
The largest hidden cost of holding appreciated assets inside a C-corporation shows up when profits reach shareholders. The corporation pays 21% when it sells. When it distributes what’s left as a dividend, shareholders pay tax again on that distribution.
The math on $100 of capital gain inside a C-corporation, for a high-income shareholder:
- Corporate tax: 21% of $100 = $21. The corporation has $79 left to distribute.
- Shareholder tax on the dividend at the top qualified rate: 20% of $79 = $15.80.
- Net Investment Income Tax on the dividend: 3.8% of $79 = $3.00.
- Combined tax: $39.80 out of $100, an effective rate of 39.8%.
An individual who sells the same asset directly pays 23.8% at the top. The C-corporation structure nearly doubles the effective rate on the same economic gain. Even at the 15% qualified dividend tier, the combined rate lands near 32.9%, still well above what the individual would pay selling directly.
Section 1231 Business Property
Both individuals and corporations that sell depreciable business property held for more than a year run into a hybrid rule worth knowing. If gains from these sales exceed losses for the year, the net gain is treated as a long-term capital gain. If losses exceed gains, the net loss is treated as an ordinary loss.11Office of the Law Revision Counsel. 26 US Code 1231 – Property Used in the Trade or Business
For individuals, the upside is real: gains taxed at 0/15/20%, losses fully deductible against ordinary income without the $3,000 cap. For corporations, the gain still gets the flat 21%, but the ordinary-loss treatment on the downside matters, because ordinary corporate capital losses can only offset capital gains. A corporation that loses money selling business equipment under Section 1231 can deduct the full loss against any income. A corporation that loses money selling stock cannot.