Capital Gains

A capital gain is the profit from selling an asset for more than its cost basis, and the US tax code splits it by holding period: positions held one year or less are short-term gains taxed at ordinary income rates (10-37%), while positions held more than one year qualify for long-term rates of 0%, 15%, or 20% depending on income.

The gap between those rates is the single biggest tax lever most investors control. A high earner pays 37% on a short-term gain versus 20% long-term, a 17-point spread decided entirely by the calendar. Losses offset gains, and up to $3,000 of net losses can offset ordinary income each year, with the rest carrying forward. Gains only exist when you sell; unrealized gains are not taxed.