Long-Term Capital Gains
Profits from selling assets held for more than one year, taxed at preferential rates of 0%, 15%, or 20%.
What is Long-Term Capital Gains?
Long-term capital gains (LTCG) are profits realized from selling assets — stocks, bonds, real estate, collectibles — that were held for more than one year. The US tax code taxes LTCG at preferential rates compared to ordinary income: 0% for taxpayers in lower income brackets, 15% for most middle-to-upper income taxpayers, and 20% for the highest earners. A 3.8% Net Investment Income Tax (NIIT) may also apply to high earners. The favorable LTCG rate is a powerful incentive to hold investments for at least one year and one day. Holding period is measured from the day after purchase through the date of sale. Real estate gains have specific rules including the Section 121 exclusion for primary residences.
Example
A single taxpayer with $100,000 in taxable income sells stock held 14 months at a $30,000 profit. The LTCG rate is 15%, resulting in $4,500 in tax. If the holding period had been only 11 months (short-term), the $30,000 would be ordinary income taxed at 22%, resulting in $6,600 in tax — $2,100 more for holding two fewer months.