Capital Gains Tax
Quick Answer
Tax owed on profits realized from selling investments or assets.
Definition
Tax owed on profits realized from selling investments or assets.
Explanation
Short-term capital gains (held ≤ 1 year) taxed as ordinary income (10-37%). Long-term gains (held > 1 year) taxed at 0%, 15%, or 20% depending on income. An additional 3.8% Net Investment Income Tax applies to high earners.
Strategies to minimize: hold over one year, tax-loss harvesting, use tax-advantaged accounts (IRAs/401(k)s), donate appreciated securities.
Example
Sell stock at $20,000 profit (held 13 months). Taxable income $80,000 (married) → 15% long-term rate. Tax = $20,000 × 15% = $3,000.
Frequently Asked Questions
What is Capital Gains Tax?
Tax owed on profits realized from selling investments or assets.
How does Capital Gains Tax work?
Short-term capital gains (held ≤ 1 year) taxed as ordinary income (10-37%). Long-term gains (held > 1 year) taxed at 0%, 15%, or 20% depending on income. An additional 3.8% Net Investment Income Tax applies to high earners.Strategies to minimize: hold over one year, tax-loss harvesting, use tax-advantaged accounts (IRAs/401(k)s), donate appreciated securities.
Can you give an example of Capital Gains Tax?
Sell stock at $20,000 profit (held 13 months). Taxable income $80,000 (married) → 15% long-term rate. Tax = $20,000 × 15% = $3,000.
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