US rules
Capital Gains Tax in the U.S.
Educational only, not financial advice.
What counts as a gain, why holding more than a year matters, and how losses reduce your tax.
The short version
In the United States, when you sell an investment for more than you paid, the profit is a capital gain. How it is taxed depends mostly on how long you held it. Gains on assets held more than one year are long-term and usually taxed at lower rates. Gains on assets held one year or less are short-term and taxed like ordinary income.
This page covers U.S. federal rules. For Canada, where only part of a gain is taxable, see capital gains tax in Canada.
Working out the gain
The IRS defines a capital gain or loss as the difference between your adjusted basis in an asset and the amount you realize when you sell it. Your basis is generally what you paid, including costs such as commissions. Gifts and inheritances have their own basis rules, covered in IRS Publication 551.
Example: you buy 100 shares for $4,000 and later sell them for $5,500. Your gain is $1,500. If you had sold for $3,200, you would have an $800 capital loss.
Losses on personal-use property, like your home or car, are not deductible. Losses on investments are.
Short-term vs long-term
Generally, if you hold an asset for more than one year before selling, the gain or loss is long-term. One year or less is short-term. The IRS counts from the day after you bought it up to and including the day you sold it.
| Short-term | Long-term | |
|---|---|---|
| Holding period | One year or less | More than one year |
| Tax rate | Your ordinary income tax rate | 0%, 15% or 20% for most assets, depending on taxable income |
Selling one day too early can move a gain from the long-term rate to your ordinary rate, so check your purchase date before you sell.
Long-term rates
The IRS says some or all net capital gain may be taxed at 0%, and for most individuals the rate on most net capital gain is no higher than 15%. A 20% rate applies above the top threshold. For tax years beginning in 2025, the IRS lists these taxable income thresholds for single filers:
- 0% up to $48,350
- 15% above $48,350 up to $533,400
- 20% above that
Married couples filing jointly, heads of household and married people filing separately have different thresholds. The thresholds are adjusted each year. The figures above are the 2025 numbers published on IRS Topic 409. Check that page for the current year before you plan a sale.
A few kinds of gains have higher maximum rates: collectibles such as coins or art (up to 28%), the taxable part of gains on certain qualified small business stock (28%), and unrecaptured section 1250 gain on real estate (25%). Higher-income investors may also owe the net investment income tax on top of these rates.
When losses exceed gains
Capital losses first offset capital gains. If your losses are bigger than your gains for the year, you can use up to $3,000 of the net loss ($1,500 if married filing separately) to reduce other income. Anything left over carries forward to future years. IRS Publication 550 has a worksheet for working out the carryover.
Example: you have $2,000 of gains and $7,000 of losses. The losses wipe out the $2,000 gain, $3,000 reduces your other income, and the remaining $2,000 carries forward.
Deliberately selling losers to use this rule is called tax-loss harvesting. It has a trap called the wash-sale rule; see tax-loss harvesting in the U.S.
Funds and dividends
Mutual funds and ETFs can pay out capital gain distributions when they sell holdings at a profit, and you owe tax on those in a taxable account even if you reinvest them. Many U.S.-listed ETFs distribute fewer capital gains than similar mutual funds because of how shares are created and redeemed, but that is not guaranteed, and it does not apply the same way to Canadian-listed ETFs.
Accounts where gains are not taxed each year
Gains inside a 401(k) or a traditional or Roth IRA are not taxed when they happen. Traditional account withdrawals are taxed as ordinary income regardless of whether the growth came from capital gains, and qualified Roth withdrawals are tax-free. See 401(k) vs IRA and Roth vs traditional IRA.
Reporting
Most sales are reported on Form 8949 and summarized on Schedule D of Form 1040. Your broker sends Form 1099-B with the sale proceeds and, for most shares bought in recent years, the cost basis. Check it, especially for shares you transferred in from another broker. If a large gain means you will owe tax, you may need to make estimated tax payments during the year; IRS Publication 505 explains when.
FAQs
Do I pay capital gains tax if I don't sell?
No. A rise in value is not taxed until you sell or otherwise dispose of the asset. Fund distributions are the main exception, because the fund realizes gains on your behalf.
How is this different from Canada?
The U.S. taxes long-term gains at separate rates. Canada includes a portion of the gain in your income and taxes it at your normal rate. See capital gains tax in Canada.
Related Guides
Sources
- IRS: Topic no. 409, Capital gains and losses
- IRS: Publication 550, Investment Income and Expenses (wash sales)
Reviewed by Greg Parsons. Links checked October 14, 2026. Educational only, not financial advice.