In general, you will pay less in taxes on long-term capital gains than you will on short-term capital gains. Typically, there are specific rules and different tax rates applied to short-term and long-term capital gains. Alternatively, gains from assets you’ve held for longer than a year are known as long-term capital gains. Profits you make from selling assets you’ve held for a year or less are called short-term capital gains. Generally, capital gains and losses are handled according to how long you've held a particular asset – known as the holding period. What's the difference between a short-term and long-term capital gain or loss? This often requires that the capital gain or loss on that asset be reported to the IRS on your income taxes. Selling one of these assets can trigger a taxable event. Typical assets include businesses, land, cars, boats, and investment securities such as stocks and bonds. What is a capital gain?Ĭapital gains are profits you make from selling an asset. Understanding the capital gains tax rate is an important step for most investors. The tax rate can vary dramatically between short-term and long-term gains. However, not all capital gains are treated equally. Some types of capital gains, such as profits from the sale of a stock that you have held for a long time, are generally taxed at a more favorable rate than your salary or interest income.
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Government taxes different kinds of income at different rates. If your investments end up losing money rather than generating gains, you can typically use those losses to reduce your taxes.
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Gains from the sale of assets you’ve held for longer than a year are known as long-term capital gains, and they are typically taxed at lower rates than short-term gains and ordinary income, from 0% to 20%, depending on your taxable income.Gains you make from selling assets you’ve held for a year or less are called short-term capital gains, and they generally are taxed at the same rate as your ordinary income, anywhere from 10% to 37%.Profits you make from selling most assets are known as capital gains, and they are generally taxed at different rates depending on how long you have held the asset.