Long-Term vs. Short-Term Capital Gains: An Overview
When you sell a capital asset for more than its original purchase price, the result is a capital gain. Capital assets include stocks, bonds, precious metals, jewelry, and real estate.1 The tax that you’ll pay on the capital gain depends on how long you held the asset before selling it. Capital gains are classified as either long- or short-term and are taxed accordingly.
It’s important to keep capital gains taxes in mind whenever you sell an asset, especially if you dabble in day trading online. First, any profits that you make are taxable. Second, you may have heard that capital gains are taxed more favorably than other types of income, but that’s not always the case. As mentioned above, it depends on how long you owned those assets before you sold them.
Long-term capital gains are derived from assets that are held for more than one year before they are disposed of. Long-term capital gains are taxed according to graduated thresholds for taxable income at 0%, 15%, or 20%. The tax rate on most taxpayers who report long-term capital gains is 15% or lower.2
Short-term capital gains are taxed just like your ordinary income. That’s up to 37% in 2021, depending on your tax bracket.
