When you sell an investment for more than you paid, the profit is called a capital gain — and the IRS taxes it. The rate you pay depends on one key factor: how long you held the asset before selling.
Short-Term vs. Long-Term: The Core Difference
Short-term capital gains apply when you sell an asset held for one year or less. These gains are taxed as ordinary income — the same rates as your wages.
Long-term capital gains apply when you sell an asset held for more than one year. These gains are taxed at preferential rates: 0%, 15%, or 20% depending on your income.
2024 Long-Term Capital Gains Tax Rates
| Filing Status | 0% Rate | 15% Rate | 20% Rate | |---|---|---|---| | Single | Up to $47,025 | $47,026–$518,900 | Over $518,900 | | Married Filing Jointly | Up to $94,050 | $94,051–$583,750 | Over $583,750 | | Head of Household | Up to $63,000 | $63,001–$551,350 | Over $551,350 |
What Gets Taxed as a Capital Gain?
Capital gains taxes apply to profits from:
- Stocks and mutual funds
- ETFs and index funds
- Real estate (with a special exclusion for primary homes — see below)
- Cryptocurrency — the IRS treats crypto as property
- Collectibles, art, and antiques — taxed at a maximum 28% long-term rate
- Business interests and partnerships
The Home Sale Exclusion
If you sell your primary residence and meet the requirements, you can exclude up to $250,000 in gain ($500,000 for married filing jointly) from your taxable income.
To qualify:
- You must have owned the home for at least 2 of the last 5 years
- You must have lived in it as your primary residence for at least 2 of the last 5 years
- You can only use this exclusion once every two years
Any gain beyond the exclusion amount is taxed as a capital gain.
Net Investment Income Tax (NIIT)
If your income exceeds $200,000 (single) or $250,000 (married filing jointly), an additional 3.8% Net Investment Income Tax applies to the lesser of:
- Your net investment income (capital gains, dividends, interest), or
- The amount by which your income exceeds the threshold
This means high-income investors effectively pay 18.8% or 23.8% on long-term gains, not just 15% or 20%.
Tax-Loss Harvesting
If you have investments that have declined in value, selling them at a loss can offset capital gains dollar-for-dollar. If losses exceed gains, you can deduct up to $3,000 in losses against ordinary income per year. Remaining losses carry forward to future years.
Watch the wash-sale rule: You cannot repurchase the same or substantially identical security within 30 days before or after the sale or the loss is disallowed.
Holding Period Strategy
If you're close to the one-year mark on a profitable investment, it may be worth waiting to flip from short-term to long-term treatment — especially if you're in a high ordinary income bracket. The difference between 37% (short-term) and 20% (long-term) on a large gain is substantial.
The Bottom Line
Capital gains taxes reward patience. The longer you hold an investment, the lower the potential tax rate. And with careful planning — harvesting losses, timing sales, and using tax-advantaged accounts — you can significantly reduce what you owe. If you sold investments this year, make sure your return accounts for every transaction.