Capital gains tax basics

When you sell an investment for more than you paid, the profit is a capital gain and the IRS wants a cut. But not all cuts are equal — the tax rate depends entirely on how long you held the asset.

Short-term vs. long-term

• Short-term capital gains: assets held 1 year or less. Taxed as ordinary income — same as your paycheck. Can be 22–37% for most middle-and-upper earners.
• Long-term capital gains: assets held more than 1 year. Taxed at 0%, 15%, or 20% depending on your income bracket.

The 0% bracket exists and is real

If your total taxable income is below ~$48k single or ~$96k married in 2025, your long-term capital gains are taxed at 0%. Retirees and people in transition years can intentionally realize gains in low-income years to pay zero federal tax on them. This is a legitimate planning tool, not a loophole.

Losses offset gains

Capital losses offset gains dollar for dollar. Any remaining loss up to $3,000/year can offset ordinary income. Anything beyond that carries forward forever. See the tax-loss harvesting article for the intermediate version.