Capital Gains Tax
See how holding an investment past one year cuts the tax on your gain, and how to trim it further.
TL;DR
- Hold an asset over a year for the lower
longTermrate of 0/15/20%. - Sell within a year and the gain is taxed at your
ordinaryRate. - Offset gains with losses through
taxLossHarvestingto cut the bill.
Short-Term vs Long-Term
Short-TermA gain on an asset held one year or less.
Taxed at your rate, up to 37%Long-TermA gain on an asset held more than one year.
Taxed at 0%, 15%, or 20%The One-Year LineThe holding period runs from the day after you buy.
Day after buy to day you sellOnly on SaleGrowth is untaxed until you actually sell the asset.
Hold = no tax yet2026 Long-Term Rates
0% RateLower earners can owe no tax on long-term gains.
Up to $49,450 single / $98,900 joint15% RateThe rate most middle-income sellers pay on gains.
Up to $545,500 single / $613,700 joint20% RateThe top rate on long-term gains for high earners.
Above $545,500 / $613,700Extra 3.8% (NIIT)High earners add a net investment income tax.
Over $200k single / $250k jointLower Your Gains Tax
Hold Past a YearWaiting for the long-term rate can nearly halve the tax.
22% short-term vs 15% long-termHarvest LossesSell losers to offset winners dollar for dollar.
Losses cancel gains, then $3,000 moreUse Tax-Sheltered AccountsGains inside an IRA or 401(k) are not taxed as you trade.
Sell inside an IRA = no gains taxDonate Appreciated SharesGiving stock to charity skips the gain and earns a deduction.
Give shares, not cashAvoid These Mistakes
Selling Too SoonSelling days before a year costs you the higher rate.
Check the date before you sellWash SaleRebuying within 30 days voids a harvested loss.
Wait 31 days to rebuyLosing Track of BasisUnrecorded cost basis makes a gain look bigger than it is.
Track buys, splits, reinvested dividendsForgetting State TaxMost states tax gains too, often as ordinary income.
Add your state rate to the planTips
- Check your purchase date before selling; crossing the one-year mark moves a gain from
ordinaryRatesto the lower long-term rate. - Harvest losses late in the year to offset gains, and deduct up to $3,000 of leftover
capitalLossagainst ordinary income.
Warnings
- You only owe capital gains tax when you
sell; a rising investment you still hold is not taxed. - Rebuying the same security within 30 days of a loss sale triggers the
washSalerule and cancels the loss.
In Practice
Compare the tax on the same gain sold just under a year versus just over a year.
You are single with $70,000 of income and have a $6,000 gain on an index fund you can sell now at 11 months or wait to 13 months.
- Sell at 11 months: short-term, taxed at your 22% rate.
- Short-term tax: $6,000 x 22% = $1,320.
- Sell at 13 months: long-term, taxed at 15%.
- Long-term tax: $6,000 x 15% = $900.
- Difference: $1,320 - $900 = $420 saved by waiting.
Waiting past one year cuts the tax from $1,320 to $900.
Holding period sets the rate, so check the calendar before you sell.
FAQ
It comes down to how long you held the asset. A gain on something you owned one year or less is short-term and taxed at your ordinary income rate, up to 37%. A gain on something held more than a year is long-term and taxed at a lower rate of 0%, 15%, or 20%.
For a single filer, the 0% rate covers taxable income up to $49,450, 15% runs up to $545,500, and 20% applies above that. For married couples filing jointly, the 0% band reaches $98,900 and 15% runs to $613,700. Many middle-income sellers pay 15%, and some pay nothing.
If you sell an investment at a loss and buy the same or a nearly identical one within 30 days before or after the sale, the IRS disallows the loss for now. It is added to the cost of the new shares instead. To keep a harvested loss, wait 31 days or buy a similar but not identical fund.
Often not. If you owned and lived in your main home for at least two of the last five years, you can exclude up to $250,000 of gain, or $500,000 if married filing jointly. Only gain above that exclusion is taxed, at long-term rates.