Capital Gains
The profit from selling an asset — and the IRS wants a cut of it.
What Are Capital Gains?
A capital gain is the profit you earn when you sell an asset for more than you paid for it. The asset could be stocks, real estate, bonds, cryptocurrency, collectibles, or any other investment.
The cost basis is what you originally paid for the asset, including commissions or fees. If you sell for less than your cost basis, you have a capital loss — which can offset other gains and reduce your tax bill.
Short-Term vs Long-Term Capital Gains
The most important distinction: how long you held the asset before selling.
Real Example: The Cost of Selling Too Soon
You buy 100 shares of an index fund at $50/share and sell at $80/share. Your gain is $3,000.
| Scenario | Hold Period | Tax Rate (22% bracket) | Tax Owed | You Keep |
|---|---|---|---|---|
| Short-term | 9 months | 22% | $660 | $2,340 |
| Long-term | 13 months | 15% | $450 | $2,550 |
Waiting just 4 more months saves $210 in taxes on a $3,000 gain — a 7% difference with zero additional effort.
Key Strategies to Minimize Capital Gains Tax
- Hold for at least one year to qualify for the lower long-term rate.
- Use tax-advantaged accounts (Roth IRA, 401k) — gains grow tax-free or tax-deferred, no annual capital gains tax.
- Tax-loss harvesting — sell losing investments to offset gains, reducing your net taxable amount.
- Primary home exclusion — if you've lived in your home 2 of the last 5 years, you can exclude up to $250,000 ($500,000 married) of gains.
- Qualified Opportunity Zones — invest in designated areas to defer or reduce capital gains taxes.
Calculate It Yourself
Calculate your capital gains tax and see current rates for your income level.