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Long-Term Capital Gains

In short

Gains from assets held over 1 year — preferential tax rates (0%, 15%, 20%)

Hold a stock for more than a year before selling and you get a special lower tax rate — 0%, 15%, or 20% depending on your income. That's much better than paying your regular income tax rate on short-term gains.

Long-term capital gains rates (0/15/20%) are significantly lower than ordinary income rates. The 15% rate applies to most middle-income taxpayers. High earners also pay the 3.8% Net Investment Income Tax on top. Holding period planning can save substantial taxes.

Related concepts

  • Short-Term Capital Gains — If you buy a stock and sell it within a year for a profit, the IRS taxes that gain at your regular income tax rate (up to 37%). That's much higher than the 15-20% rate for stocks held longer than a year.
  • Capital Gains Tax — When you sell an investment for more than you paid, the profit is a capital gain and the government taxes it. Hold less than a year = higher rate (up to 37%). Hold more than a year = lower rate (0%, 15%, or 20%).
  • Tax Bracket — The US has a progressive tax system. You don't pay the top rate on all your income — just on each dollar above specific thresholds. Knowing your bracket helps you understand if gains will be taxed short-term or long-term preferential rates.
  • Qualified Dividends — Most dividends from US companies held long enough are 'qualified' and taxed at the low capital gains rate (0-20%) instead of ordinary income rates. Non-qualified dividends (like REITs) are taxed as regular income.