Capital Gains Tax Explained: Short vs Long Term

How selling an investment is taxed, why holding for over a year can cut the rate, and how to estimate the bill before you sell.

A capital gain is the profit when you sell something for more than you paid. You owe tax only when you sell, not while the value just rises on paper.

Short term vs long term

In the US, assets held one year or less are taxed as ordinary income. Held longer than a year, they get lower long-term rates of 0%, 15% or 20%. For a single filer in 2025 the 0% rate applies up to $48,350 of taxable income and 15% up to $533,400.

Gain = sale price minus cost basis

Your cost basis is what you paid, plus fees. Buy at $10,000, sell at $15,000, and the gain is $5,000. Losses can offset gains, which is why some investors sell losers late in the year.

High earners

A 3.8% net investment income tax can apply above $200,000 of income for single filers.

Estimate before you sell

Enter your numbers in the capital gains tax calculator. To see what taxes and fees do to growth over decades, try the real return calculator. Other countries use different rules, so check your tax authority.

This article is general education, not financial advice.