Tax · 6 min read
Capital Gains Tax Guide: Short-Term vs Long-Term
Learn how capital gains are taxed, the difference between short-term and long-term rates, and how to reduce your investment tax bill.
Short-term vs long-term gains
If you sell an investment you have held for one year or less, the gain is short-term and taxed as ordinary income. If you hold it for more than one year, the gain is long-term and taxed at preferential rates of 0%, 15%, or 20% depending on your income.
How to reduce capital gains tax
Hold investments for more than a year to qualify for long-term rates. Use tax-loss harvesting to offset gains with losses. Invest through tax-advantaged accounts like 401(k)s and IRAs. Consider donating appreciated stock to charity instead of cash.
What about crypto?
Crypto is treated as property by tax authorities. Selling, trading, or spending crypto can trigger capital gains. Even swapping one token for another is a taxable event. Track every transaction or use crypto tax software.
Action step
Use the capital gains tax calculator to estimate what you will owe on a planned sale. Enter your sale price, cost basis, holding period, and tax bracket to see the difference between short-term and long-term tax.