long-term capital gains
Profits from the sale of assets held for more than one year, taxed at preferential rates of 0%, 15%, or 20% depending on income.
Example
“By holding the investment for 13 months, he qualified for the 15% long-term capital gains rate instead of his 35% income tax rate.”
Memory Tip
LONG-TERM gains (over 1 year) = lower 0/15/20% tax rate. The one-year holding period matters.
Why It Matters
Long-term capital gains taxes significantly impact your investment returns and overall wealth-building strategy. Understanding these preferential tax rates can help you plan when to sell investments and potentially save thousands of dollars in taxes compared to short-term gains rates.
Common Misconception
Many people believe that all investment profits are taxed the same way, but long-term capital gains receive much better tax treatment than short-term gains which are taxed as ordinary income. Holding an asset just a few extra months can dramatically reduce your tax bill on the same profit.
In Practice
If you bought stock for 10,000 dollars and sold it for 15,000 dollars after two years, your 5,000 dollar gain qualifies for long-term capital gains rates. Depending on your income level, you might pay 0%, 15%, or 20% tax on that 5,000 dollar gain, whereas if you had sold after just one month, that same 5,000 dollar gain could be taxed at your regular income tax rate of 24%, 32%, or even 37%.
Etymology
LONG-TERM (held more than one year) CAPITAL GAINS. Gains on assets sold after LONG-TERM holding.
Common Misspellings
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