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Hold one extra day past a year and the IRS takes far less.
Hold an asset for one year or less → short-term gain → taxed at your ordinary income rate (up to 37%).
Hold it for more than one year → long-term gain → taxed at 0%, 15%, or 20% depending on your income.
On a $10,000 gain, that difference could mean paying $2,200 (22% bracket, short-term) vs $0 (single filer below $48,350, long-term). Holding one extra day past the one-year mark can be worth thousands.
Most middle-income investors qualify here
Standard rate for most high-income earners
Top earners — rare to hit this threshold
Married Filing Jointly thresholds
0%
$0 – $96,700
15%
$96,701 – $600,050
20%
$600,051+
* NIIT (3.8% surtax) also applies above $200K single / $250K MFJ on top of these rates.
Single filers with taxable income below $48,350 (MFJ: $96,700) pay zero federal tax on long-term capital gains and qualified dividends. This is huge for:
Strategic gain harvesting — intentionally realizing gains in low-income years at 0% — is one of the most powerful (and underused) tax moves available.
Single filer, 22% ordinary income bracket — sold a stock for $20,000 gain
Common Mistake
High earners above $200,000 (single) / $250,000 (MFJ) also owe the Net Investment Income Tax (NIIT) — an additional 3.8% on investment income including capital gains. This means the effective top rate on long-term gains is 23.8% (20% + 3.8%), not just 20%. It applies to taxable accounts — not gains inside retirement accounts.
Profit from selling an asset held for one year or less. Taxed as ordinary income at your regular bracket rate — no special treatment.
Profit from selling an asset held for more than one year. Taxed at preferential rates of 0%, 15%, or 20% depending on your income — significantly lower than ordinary income rates.
The original price you paid for an asset (plus commissions). Capital gain or loss = sale price minus cost basis. Gifted and inherited assets use different basis rules.
A 3.8% surtax on investment income (including capital gains) for high earners above $200,000 (single) / $250,000 (MFJ). Adds on top of the regular capital gains rate.
Quick Summary