Even taxpayers in the top income tax bracket pay long-term capital gains rates that are nearly half of their income tax rates. They're taxed at lower rates than short-term capital gains.ĭepending on your regular income tax bracket, your tax rate for long-term capital gains could be as low as 0%. Long-term capital gains are gains on assets you hold for more than one year. The tax rate you pay on your capital gains depends in part on how long you hold the asset before selling. The IRS taxes capital gains at the federal level and some states also tax capital gains at the state level. The profit you make when you sell your stock (and other similar assets, like real estate) is equal to your capital gain on the sale. You decide you want to sell your stock and capitalize on the increase in value. Let's say you buy some stock for a low price and after a certain period of time the value of that stock has risen substantially. To find a financial advisor who serves your area, try SmartAsset's free online matching tool. But you should also note that you might be able to lower your capital gains taxes with the sale of an investment that is losing money (more on tax-harvesting below).Ī financial advisor can help you manage your investment portfolio. But you only have to pay capital gains taxes after selling an investment – the money you make from an investment is subject to taxation at the federal and state levels. These include short-term gains for investments held and sold in less than one year and long-term gains for those held and sold in a period that is over a year.Ĭapital gains and losses will either increase or decrease the value of your investment. When you have built a low-cost, diversified portfolio and the assets being held are worth more than what you paid for them, you might consider selling some of those assets to realize those capital gains.Ĭapital gains are defined as the profits that you make when you sell investments like stocks or real estate. Or you're preparing for when they do in the future. If you're reading about capital gains, it probably means your investments have performed well. What Are Capital Gains? Photo credit: © iStock/James Brey
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