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.
That means you pay the same tax rates you pay on federal income tax. Short-term capital gains are gains you make from selling assets that you hold for one year or less. There are short-term capital gains and long-term capital gains and each is taxed at different rates. 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.
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To find a financial advisor who serves your area, try our free online matching tool. Let's talk about capital gains taxes - what they are, how they work and why, exactly, you should care about them.Ī financial advisor can help you manage your investment portfolio. The not-so-good news is that your gains are subject to taxation at the federal and state level. If you’ve built a low-cost, diversified portfolio and the assets you hold are now worth more than what you paid for them, you might be thinking about selling some assets to realize those capital gains. Or you're preparing for when they do in the future. If you are reading about capital gains, it probably means your investments have performed well. Capital Gains Photo credit: © iStock/James Brey
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