Calculators6 min readUpdated: 2026-09-12
Capital Gains Tax (Investment Disposition Levy)
Definition
Capital gains tax is a statutory tax levied on the net profit realized when a capital asset (such as stocks, mutual funds, real estate, or cryptocurrency) is sold for a price higher than its purchase price (adjusted cost basis).
Detailed Technical Breakdown
Capital gains taxes apply strictly to realized profits—meaning the asset must actually be sold or exchanged. Under US tax law, assets owned for 365 days or less trigger short-term capital gains taxed at ordinary income tax brackets (up to 37%). Assets held for more than one year qualify for long-term capital gains rates (0%, 15%, or 20%), providing significant tax advantages to encourage long-term capital formation.
Key Technical Specifications
- Net Capital Gain = Gross Sale Proceeds - Adjusted Cost Basis.
- Long-term federal capital gains rates are statutory brackets of 0%, 15%, and 20% based on total taxable income.
- High earners with MAGI exceeding $200k (single) or $250k (joint) pay an additional 3.8% Net Investment Income Tax (NIIT).
- Net capital losses can offset unlimited capital gains plus up to $3,000 of ordinary wage income annually.
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