What It Means
A capital gain is the profit you make when you sell a capital assetAssetsThings you own that are worth money, such as cash, investments, a home or a car. Your assets minus your debts is your net worth. See more, such as stocks, fund shares or other investments, for more than you paid. Selling for less than you paid gives a capital loss. The IRS sorts each sale by how long you owned the asset: more than one year makes it long term, and one year or less makes it short term. Short- and long-term gains are taxed differently, which is why the date you sell can change what you owe.
Try It: Short or Long Term, and What a Loss Can Offset
Put in what you paid and what you sold for, then how long you held it. The loss rule follows IRS Topic 409.
Long-term gain. It's taxed at the long-term rates, which include 0% below an income threshold the IRS sets each year.
Short-term gain. It's taxed as ordinary income, at the same rates as your pay.
No gain and no loss.
This assumes it's your only sale this year. Losses first offset any gains.
How People Say It
- "If I wait till March, it counts as long term."
- "I'll take the loss to offset some of the gains."
- "How much of that sale is taxable?"
The Breakdown
An example. Dana buys fund shares in a regular brokerage accountBrokerage accountAn account at a brokerage firm that holds your cash and the stocks, bonds, funds and ETFs you buy and sell through that firm. See more on March 3, 2025, for $5,000. A year later they're worth $8,000, a $3,000 gain.
Where it goes wrong. Dana sells on March 3, 2026, thinking a full year has passed. IRS Topic 409 counts the holding period from the day after you buy through the day you sell, so March 4, 2025, to March 3, 2026, is exactly one year. That's one year or less, which makes it a short-term gain, taxed as ordinary income. Selling on March 4, 2026, or later would have made it long term.
| Sold on | Held | Type |
|---|---|---|
| March 3, 2026 | One year or less | Short term |
| March 4, 2026 | More than one year | Long term |
When the sale is a loss. Say Dana's only sale that year had lost $7,000 instead. A net capital loss can lower other income by up to $3,000 a year ($1,500 if married filing separately). Dana takes $3,000 this year and carries the other $4,000 forward to later years.
What to watch for
- The purchase date. Keep the confirmation showing when you bought and what you paid.
- The account type. Sales inside retirement accounts follow that account's own tax rules.
Good to Know
IRS Topic 409 explains how capital gains and losses are taxed, including the 0%, 15% and 20% rates on long-term gains and the income thresholds for each, which the IRS adjusts every year. Look up the current year there rather than relying on last year's figures. Net short-term gains are taxed as ordinary income. When your losses are bigger than your gains, the deduction against other income is capped at $3,000 ($1,500 if married filing separately), and the rest carries forward. Selling a home or trading inside a retirement account follows different rules, so ask a tax professional about your own sales.
FAQ
How long do I have to hold an investment for a long-term capital gain?
More than one year. IRS Topic 409 counts from the day after you acquired it up to and including the day you sell, and one year or less is short term.
How are short-term capital gains taxed?
Net short-term capital gains are taxed as ordinary income at your regular graduated rates, according to the IRS Schedule D instructions. Long-term gains have their own rates, listed in Topic 409.
How much of a capital loss can I deduct?
If your losses are more than your gains, you can use up to $3,000 of the net loss a year against other income ($1,500 if married filing separately). Any loss beyond that carries forward to future years.
Do It in Buhata
Vault, Reminders
Keep your trade confirmations in Vault (Plus) so you have each purchase date and price when it's time to sell.
Open BuhataRelated Terms and Categories
- Brokerage account
An account at a brokerage firm that holds your cash and the stocks, bonds, funds and ETFs you buy and sell through that firm.
- Index fund
A mutual fund or ETF that aims to track the return of a market index, such as the S&P 500, instead of picking investments to beat it.
- ETF
An exchange-traded fund: a pooled investment fund whose shares trade on stock exchanges throughout the day at market prices.
- Tax-advantaged account
An account the tax code rewards, such as a 401(k), IRA, HSA or 529 plan, where taxes are cut, delayed or skipped if you follow its rules.
- Roth IRA
An individual retirement account funded with after-tax money, where qualified withdrawals, earnings included, come out tax-free.
- Net worth
What you own minus what you owe: the value of your savings, investments, home and other assets, less your mortgage, loans and card balances.
Sources
IRS, "Topic no. 409, Capital gains and losses"; IRS, "2025 Instructions for Schedule D (Form 1040) Capital Gains and Losses"
Last updated .