Capital Gain
The profit realized from the sale of a capital asset such as stock, real estate, or cryptocurrency, taxed at preferential rates if held longer than one year.
Detailed Explanation
A capital gain is realized when a taxpayer sells or otherwise disposes of a capital asset for more than its adjusted basis. Capital assets are broadly defined and include stocks, bonds, cryptocurrencies, real estate held for investment, mutual fund shares, and most personal property. The character of the gain depends on the holding period: assets held more than one year produce long-term capital gains, taxed at preferential federal rates of 0%, 15%, or 20% (2026 brackets: 0% up to $48,350 single / $96,700 MFJ taxable income, 15% up to $533,400 / $600,050, 20% above). Short-term capital gains (held one year or less) are taxed at ordinary income rates up to 37%. The 3.8% Net Investment Income Tax applies on top of long-term and short-term capital gains for taxpayers with MAGI above $200K single / $250K MFJ. Collectibles and Section 1250 unrecaptured real estate depreciation have special maximum rates of 28% and 25% respectively. Capital gains and losses are reported on Form 8949 (each transaction) and summarized on Schedule D. Net capital losses offset capital gains and up to $3,000 of ordinary income per year ($1,500 MFS), with the remainder carried forward indefinitely. The "wash sale" rule (IRC §1091) disallows losses where substantially identical securities are repurchased within 30 days.
Key Points
- Long-term (>1 year): 0%/15%/20% federal, plus 3.8% NIIT for high earners.
- Short-term (≤1 year): ordinary income rates up to 37%, plus 3.8% NIIT.
- Special max rates: 28% on collectibles, 25% on Section 1250 unrecaptured real estate gain.
- Net losses up to $3,000/year offset ordinary income; excess carries forward indefinitely.
- Reported transaction-by-transaction on Form 8949, summarized on Schedule D.
- Wash sale rule (IRC §1091) disallows losses on substantially identical securities repurchased within 30 days.
Practical Example
You bought 100 shares of XYZ at $50 in March 2024 and sold all 100 at $80 in June 2026. Holding period exceeds one year, so the $3,000 gain is long-term, taxed at 15% federal ($450) plus possibly 3.8% NIIT ($114) if your MAGI is above the threshold. If you had sold in February 2025 instead (under one year), the same $3,000 would be short-term, taxed at your ordinary marginal rate.
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Learn about Tax Planning & StrategyRelated Terms
Tax Basis
The amount of investment in an asset for tax purposes, used to determine gain or loss when the asset is sold or otherwise disposed of.
Form 8949 (Sales and Other Dispositions of Capital Assets)
The IRS form used to report each individual sale or disposition of a capital asset, with totals flowing to Schedule D.
Tax-Loss Harvesting
A strategy of selling investments at a loss to offset capital gains and up to $3,000 of ordinary income annually.
Like-Kind Exchange (Section 1031)
A tax-deferred exchange of investment or business real property for similar property under IRC Section 1031, deferring capital gains recognition.
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