Capital Gains
Tax Glossary Term
Definition
A capital gain is the profit you realize when you sell a capital asset (such as stocks, bonds, real estate, or cryptocurrency) for more than you paid for it. The amount you paid (plus certain costs like broker commissions) is your 'cost basis,' and the gain is the difference between the sale price and that basis. Capital gains are divided into two categories based on how long you held the asset. Short-term capital gains apply to assets held for one year or less and are taxed at your ordinary income tax rates (10.0% to 37.0%). Long-term capital gains apply to assets held for more than one year and receive preferential tax rates of 0.0%, 15.0%, or 20.0%, depending on your taxable income. For 2026, a single filer pays 0.0% on long-term gains if their taxable income is below approximately $49,450, 15.0% up to about $545,500, and 20.0% above that. High-income taxpayers may also owe the 3.8% Net Investment Income Tax (NIIT) on top of these rates. If you sell an asset at a loss, you have a capital loss, which can offset capital gains dollar-for-dollar. If losses exceed gains, you can deduct up to $3,000 of net capital losses against ordinary income per year, carrying any remaining losses forward to future years. Tax-loss harvesting (strategically selling losing investments to offset gains) is a common year-end planning strategy.
Example
Bought 100 shares at $50 = $5,000 cost basis
Sold after 2 years at $80 = $8,000 proceeds
Long-term capital gain: $8,000 - $5,000 = $3,000
Tax at 15.0% rate: $450