Capital gains arise when you sell stocks, bonds, real estate, or other assets at a profit. They're taxed differently depending on how long you held the asset.
Short-Term vs. Long-Term
- Short-term (held ≤ 1 year): Taxed as ordinary income (up to 37%)
- Long-term (held > 1 year): Taxed at 0%, 15%, or 20% depending on income
Capital Losses
You can offset capital gains with capital losses and deduct up to $3,000 in net losses per year from ordinary income.
Capital Gains on a Home Sale
The IRS Section 121 exclusion lets single filers exclude up to $250,000 of gain ($500,000 for married filing jointly) on the sale of a primary residence, provided you owned and lived in it for at least 2 of the last 5 years. Gains above the exclusion are taxed at standard long-term capital gains rates.
Tax-Loss Harvesting
Selling losing investments to offset gains elsewhere in your portfolio — known as tax-loss harvesting — is a common year-end strategy. The IRS "wash sale" rule blocks you from claiming the loss if you buy back the same or a substantially identical security within 30 days.