Capital Gains Tax — How Investment Profits Are Taxed
When you sell an investment for more than you paid, the profit is a capital gain and may be taxed.
Short-Term vs Long-Term
| Feature | Short-Term | Long-Term |
|---|---|---|
| Holding Period | Less than 1 year | More than 1 year |
| Tax Rate | Same as income tax | 0%, 15%, or 20% |
| Strategy | Avoid when possible | Hold for lower rates |
Tax-Saving Strategies
1. Hold investments 1+ year to qualify for lower long-term rates.
2. Tax-loss harvesting: Sell losing investments to offset gains.
3. Use tax-advantaged accounts: Retirement accounts grow tax-free.
4. Gift appreciated assets: To family members in lower tax brackets.