Long-Term vs. Short-Term Capital Gains

 
Education, Taxes, Wealth Management June 14, 2023

Long-Term vs. Short-Term Capital Gains

When you purchase a capital asset such as a stock, bond, precious metal, jewelry, or real estate, the price you pay for it establishes your basis. If you then sell that asset at a later date for more than your basis, you will incur a capital gain on the difference between the sale price and your basis. Depending on how long you held the asset will determine if the gain will be a long-term capital gain or short-term capital gain.

If you sell an asset that you have held for less than one year, the profit will be taxed as a short-term capital gain. The rate applied to short-term capital gains is the same rate as ordinary income tax based on your income and filing status. In 2022, this ranges from 10%-37%.

Long-term capital gains apply to assets that are held for longer than a year before they are sold. The tax applied to the gain is either 0%, 15%, or 20% depending on your taxable income. Those with less than $40,000 of income will owe no tax. Most taxpayers will be subject to the 15% long-term capital gain rate. The highest income earners will save 17% by holding assets for at least one year compared to ordinary income rates. The preferable tax treatment for long-term capital gain rates encourages investors to invest for the long term and hold assets for at least a year and a day.

 

Individual investment positions detailed in this post should not be construed as a recommendation to purchase or sell the security. Past performance is not necessarily a guide to future performance. There are risks involved in investing, including possible loss of principal. This information is provided for informational purposes only and does not constitute a recommendation for any investment strategy, security or product described herein. Employees and/or owners of Nelson Capital Management, LLC may have a position securities mentioned in this post. Please contact us for a complete list of portfolio holdings. For additional information please contact us at 650-322-4000.

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