Capital Gains Tax
Tax on the profit from selling an asset for more than you paid for it.
What does capital gains tax mean?
Assets held over a year qualify for lower long-term capital gains rates; those held a year or less are taxed as ordinary income. You only owe the tax when you sell and realize the gain.
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Related terms
Capital Gains Tax — frequently asked
What is the long-term capital gains tax rate?
Assets held longer than a year are taxed at 0%, 15% or 20% depending on your taxable income, far below ordinary rates. Assets held a year or less are short-term and taxed as ordinary income.
How can I reduce capital gains tax?
Hold investments over a year for the lower long-term rate, harvest losses to offset gains, use tax-advantaged accounts like a Roth or 401(k), and — for a primary home — claim the $250,000 ($500,000 married) sale exclusion if you qualify.