Capital Gains
The profit from selling a capital asset (stocks, real estate, etc.) for more than its purchase price. Capital gains are classified as short-term or long-term based on holding period.
Capital gains are the profits realized when you sell a capital asset — such as stocks, bonds, mutual funds, real estate, or cryptocurrency — for more than your cost basis (generally what you paid for it). If you sell for less than your basis, you have a capital loss.
Capital gains are classified by how long you held the asset. Short-term capital gains (assets held one year or less) are taxed at your ordinary income tax rates, which can be as high as 37%. Long-term capital gains (assets held more than one year) receive preferential tax rates of 0%, 15%, or 20%, depending on your taxable income.
You can offset capital gains with capital losses from other investments. If your losses exceed your gains, you can deduct up to $3,000 of net capital losses against ordinary income per year, with any excess carried forward to future years. This makes tax-loss harvesting — strategically selling losing investments to offset gains — a valuable tax planning tool.
How it works
A capital gain is the profit you realize when you sell a capital asset — stocks, bonds, real estate, cryptocurrency, and similar property — for more than your cost basis, generally what you originally paid for it plus certain adjustments. Selling for less than your basis produces a capital loss instead. The tax treatment of a gain depends heavily on how long you held the asset before selling: one year or less is short-term, more than one year is long-term.
You report capital gains and losses on Form 8949 and summarize them on Schedule D, using the cost-basis and proceeds information your brokerage reports on Form 1099-B. Short-term gains are taxed at your ordinary income tax rates, as high as 37%, while long-term gains get preferential rates of 0%, 15%, or 20% depending on your taxable income, which is why the one-year holding period is such a widely watched line for investors deciding when to sell.
Capital losses offset capital gains dollar for dollar, and if your losses exceed your gains for the year, you can deduct up to $3,000 of the excess against ordinary income, carrying forward any remainder to future years indefinitely. This is the basis for tax-loss harvesting, deliberately selling losing positions to generate losses that offset gains elsewhere in your portfolio. A common mistake is triggering the wash-sale rule by buying back a substantially identical security within 30 days of selling it at a loss, which disallows the loss for current-year purposes.
Example: netting gains and losses
An investor sells one stock for a $12,000 gain (held long-term) and another for a $4,000 loss (also held long-term) in the same year. Netting the two together, the $4,000 loss offsets $4,000 of the gain, leaving a net long-term capital gain of $8,000 subject to tax.
If instead the investor had $15,000 in losses against only $12,000 in gains, the $3,000 excess loss could be deducted against ordinary income for the year, with any further unused loss carried forward to offset gains in future tax years.
2026 capital gains quick estimate
Estimate the additional federal tax caused by your gains. Uses the standard deduction; state tax is not included.
Assets held more than one year.
Assets held one year or less.
Federal tax caused by gains
$7,500Incremental estimate versus the same ordinary income with no gains.
Long-term gains tax
$7,500Top LTCG band reached: 15%
3.8% NIIT
$0No NIIT at these inputs.
Frequently asked questions
How are long-term capital gains taxed differently from short-term ones?
Can I deduct capital losses from my regular income?
What is cost basis and why does it matter for capital gains?
Related Terms
Short-Term Capital Gains
Profits from selling assets held for one year or less, taxed at ordinary income tax rates (10% to 37%). There is no preferential rate for short-term gains.
Long-Term Capital Gains
Profits from selling assets held for more than one year, taxed at preferential rates of 0%, 15%, or 20% depending on your taxable income.
Cost Basis
The original purchase price of an asset (plus adjustments like commissions and reinvested dividends), used to calculate capital gain or loss when you sell.
Net Investment Income Tax (NIIT)
A 3.8% surtax on investment income (interest, dividends, capital gains, rental income) for individuals with modified AGI above $200,000 (single) or $250,000 (married filing jointly).