Glossary
Capital gain
The profit from selling an asset for more than its cost basis; in the US it is taxed differently for short and long holdings.
A capital gain is the profit you make when you sell an investment or other capital asset for more than its cost basis, generally what you paid including fees. While you still own the asset, the increase is an unrealized gain and is not taxed in the US; it becomes a realized gain, and a tax event in a taxable account, when you sell.
How it is calculated and taxed
US federal tax depends on how long you held the asset:
- Short-term (held one year or less): taxed as ordinary income at your regular rate.
- Long-term (held more than one year): taxed at 0%, 15% or 20%, depending on taxable income.
For 2026, a single filer pays 0% on long-term gains while taxable income stays at or below $49,450 and 15% up to $545,500, with 20% above that; for married couples filing jointly the thresholds are $98,900 and $613,700. Higher earners may also owe the 3.8% net investment income tax. Gains inside IRAs and 401(k)s are not taxed when realized.
Other things to know
Capital losses offset capital gains, and the order of matching depends on short- versus long-term categories. Mutual funds and some ETFs pass realized gains to shareholders as capital gains distributions, taxable even if you did not sell anything. State income taxes may apply on top. Rates and thresholds change annually, so check the current year's IRS figures.