---
title: "How Capital Gains Taxes Work in the US"
description: "Sell a stock, a home or some crypto for more than you paid, and the profit is a capital gain — and the IRS wants a cut. How big a cut depends mostly on one thing: how long you held it."
category: "Personal Finance"
category_url: https://boursel.com/category/personal-finance
author: "Kenji Nakamura"
published: 2026-06-26T17:36:00.000Z
updated: 2026-06-26T17:36:00.000Z
canonical: https://boursel.com/article/how-capital-gains-taxes-work-in-the-us
tags: ["taxes", "capital-gains", "investing", "irs", "personal-finance"]
---
# How Capital Gains Taxes Work in the US

Sell a stock, a home or some crypto for more than you paid, and the profit is a capital gain — and the IRS wants a cut. How big a cut depends mostly on one thing: how long you held it.

*This is general information, not tax advice. Verify current figures at IRS.gov or with a professional.*

The rules sound complex, but the core of capital-gains tax comes down to a few ideas worth knowing before you sell anything.

## What a capital gain is

A **capital gain** is the profit when you sell an asset — stock, fund, home, crypto — for more than your **cost basis** (generally what you paid, plus adjustments like commissions or reinvested dividends). You're taxed only on the **gain**, not the whole sale. Buy 100 shares at $10 ($1,000 basis), sell for $1,500, and your taxable gain is $500. Sell for less than basis and you have a **capital loss**, which can offset gains.

## Realized vs. unrealized

A gain is **unrealized** (a "paper gain") while you still hold the asset — and the IRS generally doesn't tax it. The clock starts only when you **sell** and the gain becomes **realized**. A stock that's doubled costs you nothing in tax until you sell.

## Short-term vs. long-term — the key split

The single biggest factor is your **holding period**, [per the IRS](https://www.irs.gov/taxtopics/tc409):

- **Short-term** (held **one year or less**): taxed as **ordinary income** at your regular rate — up to 37%.
- **Long-term** (held **more than a year**): taxed at a preferential **0%, 15%, or 20%**, depending on taxable income.

The boundary is exact: day 366 is long-term, day 365 is short-term. For 2025, the 0% rate runs up to about $48,350 of taxable income (single) / $96,700 (married filing jointly); the 20% rate starts above roughly $533,400 / $600,050. The 2026 thresholds rise slightly (about $49,450 / $98,900 for the 0% band), per IRS inflation adjustments. These apply to **taxable income**, so a modest earner can owe **0%** on long-term gains.

## The extra 3.8% for high earners

High earners also face the **Net Investment Income Tax (NIIT)** — an extra **3.8%** on investment income (including gains) once modified income tops $200,000 (single) / $250,000 (joint), [per the IRS](https://www.irs.gov/taxtopics/tc559). Those thresholds aren't inflation-adjusted, so they catch more people over time; combined with the 20% rate, the top federal rate on long-term gains reaches **23.8%**.

## Strategies people use

- **Tax-loss harvesting:** losses offset gains dollar-for-dollar; net losses can offset up to **$3,000** of ordinary income a year, with the rest carried forward.
- **The wash-sale rule:** you can't claim a loss if you rebuy a "substantially identical" security within 30 days before or after — the loss is deferred into the new shares' basis.
- **Hold past a year** to convert a short-term gain (up to 37%) into a long-term one (often 15%).
- **Tax-advantaged accounts** (401(k), IRA, HSA) shelter gains from the normal capital-gains regime — see our explainers.
- **Step-up in basis at death:** an heir's basis resets to the asset's value at death, erasing the tax on a lifetime of appreciation.

## Special cases

- **Home sale:** exclude up to **$250,000** of gain (single) / **$500,000** (joint) on a primary residence you owned and lived in for 2 of the last 5 years.
- **Collectibles** (art, coins): taxed up to **28%**.
- **Crypto:** the IRS treats it as **property** — every sale or trade is a taxable event under the same rules.

## What it means

Capital-gains tax is manageable with a little awareness: know your holding period before you sell, track your basis (don't forget reinvested dividends), and use losses to offset gains. The rates and limits change yearly, so confirm the current figures with the IRS or a tax professional before acting. This is an explainer, not advice.

## Sources

- [Topic No. 409, Capital Gains and Losses](https://www.irs.gov/taxtopics/tc409)
- [Topic No. 559, Net Investment Income Tax](https://www.irs.gov/taxtopics/tc559)