Tax glossary

Capital Gains

Capital Gains — what it means, how it works, and a real example, explained without the jargon.

What is Capital Gains?

A capital gain is the profit when you sell an asset — stock, crypto, a house, a collectible — for more than you paid for it.

How it works

How long you held it decides the rate. Own it a year or less and the gain is short-term, taxed like ordinary income. Own it longer and it's long-term, taxed at 0%, 15%, or 20% depending on your income. The gain is the sale price minus your cost basis.

A quick example

You buy stock for $4,000 and sell 18 months later for $9,000. That $5,000 long-term gain is taxed at 15% for most people — $750 — versus potentially $1,100+ at ordinary rates.

What people get wrong

Gains inside a 401(k), IRA, or HSA aren't taxed when you sell — only taxable brokerage accounts trigger capital-gains tax. That's a big reason to hold your most-traded positions in tax-advantaged accounts.

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Frequently asked questions

What does Capital Gains mean?

A capital gain is the profit when you sell an asset — stock, crypto, a house, a collectible — for more than you paid for it.

How does Capital Gains work?

How long you held it decides the rate. Own it a year or less and the gain is short-term, taxed like ordinary income. Own it longer and it's long-term, taxed at 0%, 15%, or 20% depending on your income. The gain is the sale price minus your cost basis.

What's the most common mistake with capital gains?

Gains inside a 401(k), IRA, or HSA aren't taxed when you sell — only taxable brokerage accounts trigger capital-gains tax. That's a big reason to hold your most-traded positions in tax-advantaged accounts.