The profit from selling an asset — short-term versus long-term rates, losses, and common mistakes
A capital gain is the profit when you sell an asset — shares, a fund, property, a business, a collectible, crypto — for more than your cost basis (what you paid plus certain costs). Unlike dividends or rent, it only arrives when you sell, so it is lumpy income rather than a steady one.
Assets held one year or less produce short-term gains, taxed as ordinary income. Assets held more than a year produce long-term gains, taxed at 0%, 15% or 20% depending on taxable income, with a 3.8% net investment income tax for higher earners. Collectibles and some property have their own rates. The one-year line is often worth waiting for.
Losses offset gains. If losses exceed gains, up to $3,000 a year ($1,500 if married filing separately) can offset other income, and the rest carries forward to future years. Selling at a loss and buying the same or a substantially identical investment within 30 days before or after is a "wash sale", and the loss is disallowed for now.
If you owned and lived in your main home for at least two of the last five years, up to $250,000 of gain ($500,000 for most married couples filing jointly) can be excluded from tax.
Selling a day before a gain would have turned long-term, losing track of cost basis (especially with reinvested dividends), concentrating in a single holding, and trading often enough that short-term rates and fees eat the gains. Brokerages report sales on Form 1099-B; you report them on Form 8949 and Schedule D.
See also: Cashback and Rewards.
Long-term gains are taxed at 0%, 15% or 20% depending on income; short-term gains at ordinary income rates. Check IRS Topic 409 for the current income thresholds.
Losses offset gains in full; beyond that, up to $3,000 a year against other income, with the rest carried forward.
Tax rules, limits and pay data change. Check the current figures with the primary source before acting on them.