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What Is a Long-Term Capital Gain or Loss? A Guide

Updated: November 23, 2022

Have you ever sold an investment at a profit and wondered if you had to pay taxes on the money you made? It can depend on things such as taxable income and investment income. If you held the investment for more than a year before selling it, it’s considered a long-term capital gain and is taxed at a lower rate than your ordinary income. 

 But if you held a capital asset for less than a year, it’s considered a short-term capital gain and is taxed at your ordinary income tax rate. In this article, we’ll take a closer look at long-term capital gains and losses and how they’re taxed. We’ll also cover the capital gain rate and some strategies for minimizing your tax bill.

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    KEY TAKEAWAYS

    • Long-term capital gains or losses occur when you sell an investment that you have owned for over 12 months. 
    • There can be more favorable tax rates for long-term gains compared to short-term gains. 
    • You can use a long-term loss to help offset a future long-term gain. 

    What Is Capital Gain?

    A capital gain is an increase in the value of an investment. The gain is realized when the investment is sold for a price that is higher than the purchase price. A capital loss occurs when the selling price is less than the purchase price. 

    Capital gains are important to investors because they provide a way to make money from an investment. However, they are also important to the economy because they represent a source of revenue for the government. The tax on capital gains is one of the most important sources of tax revenue for the federal government. 

    Most people think of capital gains as being positive, but they can also be negative. A capital loss occurs when you sell an investment for less than you paid for it. A capital loss can offset capital gains and reduce your tax bill. If you have a capital gain, you may be subject to taxes on the gain. 

    The tax rate on capital gains depends on your tax bracket. For example, if you are in the 25% tax bracket, you will owe 25% in taxes on your capital gains. Long-term capital gains are taxed at a lower rate than short-term capital gains. The long-term capital gains tax rate is 20% for taxpayers in the highest tax bracket. 

    For taxpayers in the lower tax brackets, the long-term capital gains tax rate is 0%, 15%, or 20%. Short-term capital gains are taxed at your regular income tax rate. Short-term capital gains are gains on investments that you have held for one year or less.

    Turn Tax Pains Into Tax Gains

    What Is Long-Term Capital Gain?

    A long-term capital gain is a profit that you earn from selling an asset that you have held for more than one year. Capital gains are taxed at a lower rate than ordinary income, so they can be a valuable way to boost your earnings. There are two types of capital gains: short-term and long-term. 

    • Short-term capital gains are profits on assets that you have held for less than one year
    • Long-term capital gains are profits on assets that you have held for more than one year

    The tax rate on long-term capital gains is lower than the tax rate on short-term capital gains. The tax rate on long-term capital gains is also lower than the tax rate on ordinary income. 

    For example, the tax rate on long-term capital gains is 15% for most taxpayers. The tax rate on ordinary income is up to 37%. If you are in the 10% or 12% tax bracket, your long-term capital gains are taxed at 0%. 

    Long-term capital gains can be a valuable source of income, especially if you are in a high tax bracket. But it’s important to remember that they are taxed at a lower rate than ordinary income. 

    So, if you have a choice between selling an asset for a short-term gain or a long-term gain, you may want to choose the long-term gain, even if it means waiting longer to sell the asset.

    What Is Long-Term Capital Loss?

    When it comes to investments, there is always the potential for gain or loss. And, when it comes to taxes, there can be big implications for short-term vs. long-term capital gains or losses. So, what exactly is a long-term capital gain or loss? A long-term capital loss is realized when an investment is held for more than one year and then sold at a loss. 

    This is in contrast to a short-term capital gain or loss, which is realized when an investment is held for one year or less and then sold. Long-term capital gains are taxed at a lower rate than short-term capital gains, so it’s important to understand the difference. 

    For example, let’s say you buy a stock for $10 and sell it one year later for $11. That would be a $1 short-term capital gain and would be taxed at your marginal tax rate. But, if you held onto that same stock for two years and then sold it for $11, that would be a $1 long-term capital gain and would be taxed at a lower rate. Of course, there is also the potential for loss with any investment. 

    If you buy a stock for $10 and sell it for $9 one year later, that would be a $1 short-term capital loss. And if you held onto that stock for two years and then sold it for $9, that would be a $1 long-term capital loss. Generally speaking, long-term capital losses can offset long-term capital gains plus up to $3,000 of other income. Short-term losses can offset only short-term gains. 

    How to Determine Your Long-Term Capital Gains or Losses

    If you’re like most people, you probably don’t think much about capital gains or losses. After all, who really understands all that tax mumbo jumbo? But if you own investments, it’s important to have a basic understanding of how capital gains and losses are taxed. 

    Here’s a quick primer on capital gains and losses, and how to determine if you have a long-term gain or loss. The tax treatment of your gains or losses depends on how long you owned the investment before selling it. If you owned the investment for one year or less, it’s considered a short-term gain or loss. 

    To figure out your long-term capital gain or loss, start by finding the cost basis of your investment. The cost basis is the original price you paid for the investment, plus any commissions or fees paid to purchase it. 

    Next, subtract your cost basis from the proceeds of the sale (the price you sold the investment for, minus any commissions or fees). This will give you your net capital gain or loss. Finally, apply the appropriate tax rate to your net gain or loss to calculate the amount of tax owed.

    How Do Long-Term Capital Gains or Losses Work?

    A long-term capital gain or loss is simply the profit or loss realized on the sale of an asset that was held for more than one year. Capital gains are taxed at a lower rate than ordinary income, so they can be a great way to boost your investment returns. 

    However, it’s important to remember that long-term capital gains are only taxed if you sell the asset for more than you paid for it. If you sell the asset for less than you paid for it, then you’ll have a capital loss. 

    Capital losses can be used to offset capital gains, and they can also be used to offset ordinary income up to $3,000 per year. So, if you have significant capital losses, it’s important to talk to a tax advisor to make sure you’re taking advantage of all the available tax benefits.

    It's Time For Owners To Own Tax Season

    Tax Rates for Long-Term Capital Gain

    There are two types of capital gains: short-term and long-term. A short-term capital gain is made when an asset is held for one year or less, while a long-term capital gain is made when an asset is held for more than one year. 

    The tax rate on a long-term capital gain depends on your tax bracket. For example, if you are in the 10% tax bracket, your long-term capital gains tax rate is 0%. However, if you are in the 39.6% tax bracket, your long-term capital gains tax rate is 20%. There are several ways to minimize your capital gains taxes. 

    One way is to invest in assets that are taxed at a lower rate. Another way is to hold onto your assets for more than a year so that they qualify for the long-term capital gains rate. Whatever your situation, it’s important to understand the tax implications of selling any asset. By doing so, you can minimize your tax bill and keep more of your hard-earned money.

    A capital gain is a difference between the price you paid for an asset and the price you sell it for. A long-term capital gain is a gain on an asset you’ve held for more than a year. A long-term capital loss is a loss on an asset you’ve held for more than a year. 

    To calculate your long-term capital gains or losses, you’ll need to know the purchase price and the sale price of the asset. The purchase price is what you paid for the asset, and the sale price is what you sold it for. 

    To calculate your gain or loss, subtract the purchase price from the sale price. If the result is positive, you have a capital gain. If the result is negative, you have a capital loss. The tax rate on long-term capital gains depends on your tax bracket. 

    • If you’re in the 10% or 15% tax bracket, your long-term capital gains are taxed at 0%
    • If you’re in the 25%, 28%, 33%, or 35% tax bracket, your long-term capital gains are taxed at 15%
    • If you’re in the 39.6% tax bracket, your long-term capital gains are taxed at 20%. If you have a capital

    Summary 

    A long-term capital gain or loss is when you see a gain or a loss from the sale of an investment. You have to own the investment for longer than 12 months when the sale goes through. Long-term capital gains and losses work in contrast to short-term gains and losses. 

    Short-term gains or losses occur when you own an investment for less than 12 months and sell it. More often than not, long-term capital gains can provide more favorable tax treatment compared to short-term gains. Capital gains losses can depend on the time of sale. 

    Less Taxin'. More Relaxin'

    FAQs About Long-Term Capital Gain or Loss

    Are Long-Term Capital Gain Losses Taxed?

    Typically, long-term capital gain losses get taxed at your ordinary income tax rates, but can rise to as much as 37%.

    Is Long-Term Capital Gain Taxable?

    Yes, long-term capital gains tax gets applied to various assets that you hold for over a year. The tax rates are 0, 15, and 20 percent depending on your individual income. It can be referred to as taxable capital gain and it includes deductible capital losses. 

    Can We Set Off Long-Term Losses Against Long-Term Gain Tax?

    Long-term capital losses can only be set off against a long-term capital gain when it comes to capital transactions and real property. 

    What Is the Difference Between Long-Term and Short-Term Capital Gain or Loss?

    Long-term capital gains can only occur from the sale of an asset you have owned for more than a year. Short-term gains or losses occur from assets you own for less than a year. It’s important to keep an eye on unused long-term capital loss. 

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