How to Calculate Capital Gains

Capital gain equals sale price minus cost basis minus selling expenses Cost basis is generally the purchase price plus commissions, fees, and reinvested dividends Inherited assets receive a stepped-up basis to fair market value at the date of death Gifted assets carry over the donor's original basis, which can create a surprise tax bill

What Counts as a Capital Asset

Stocks, bonds, mutual funds, ETFs, real estate, and collectibles are all capital assets Collectibles like art and coins are taxed at a maximum long-term rate of 28% Qualified small business stock (Section 1202) may exclude up to 100% of gains Cryptocurrency is treated as property by the IRS and subject to capital gains rules

Net Investment Income Tax and State Taxes

A 3.8% NIIT surtax applies above $200K single or $250K married filing jointly MAGI The NIIT makes the effective top federal rate on long-term gains 23.8% Most states tax capital gains as ordinary income, with rates ranging from 0% to over 13% Nine states have no income tax; California taxes gains at up to 13.3%

Selling losing investments to offset gains can reduce your current-year tax bill Up to $3,000 of net capital losses can offset ordinary income annually Unused losses carry forward indefinitely to offset gains in future years The wash-sale rule disallows the loss if you repurchase identical securities within 30 days

Capital Loss Netting Rules

Short-term gains and losses are netted first, then long-term gains and losses If one category has a net loss, it offsets the net gain in the other category Any remaining net loss up to $3,000 offsets ordinary income; the rest carries forward Strategic netting can help use losses to offset gains taxed at the highest rates first

Strategies to Manage Capital Gains

Donating appreciated securities to charity avoids capital gains tax and provides a deduction Qualified Opportunity Zone investments can defer and partially reduce capital gains Timing asset sales across tax years helps manage bracket exposure and the NIIT threshold Installment sales spread gain recognition over multiple years, potentially lowering rates

Capital Gains Tax Rates

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Long-Term vs Short-Term Capital Gains

Assets held longer than one year qualify for preferential long-term rates of 0%, 15%, or 20%
Assets held one year or less are taxed at ordinary income rates up to 37%
The 0% bracket can be valuable for retirees or low-income years to realize gains tax-free
Holding at least one year and one day converts short-term treatment to long-term

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Long-Term vs Short-Term Capital Gains

How to Calculate Capital Gains

What Counts as a Capital Asset

Net Investment Income Tax and State Taxes

Tax-Loss Harvesting

Capital Loss Netting Rules

Strategies to Manage Capital Gains

Related Topics

Ordinary Income vs Capital Gains

Wash Sale Rules Explained

Gifting Appreciated Stock: A Tax-Smart Way to Give

Long-Term vs Short-Term Capital Gains

How to Calculate Capital Gains

What Counts as a Capital Asset

Net Investment Income Tax and State Taxes

Tax-Loss Harvesting

Capital Loss Netting Rules

Strategies to Manage Capital Gains

Related Topics

Ordinary Income vs Capital Gains

Wash Sale Rules Explained

Gifting Appreciated Stock: A Tax-Smart Way to Give