Long-term capital gains are profits from selling capital assets, such as stock, crypto, real estate, or a business, held for more than one year. They are taxed at preferential rates of 0%, 15%, or 20% depending on taxable income, far below ordinary rates that reach 37%, and high earners add the 3.8% net investment income tax. Assets held one year or less generate short-term gains taxed as ordinary income, so the one-year line is one of the most valuable timing thresholds in the code. The 0% bracket is a genuine planning tool: taxpayers in low-income years can "harvest" gains tax-free up to the bracket top. Related mechanics include capital losses offsetting gains without limit (plus $3,000 per year against ordinary income), the wash sale rule for repurchased securities, and special rates for collectibles (28% maximum) and unrecaptured real estate depreciation (25% maximum).
Long-Term Capital Gains
Primary authority: IRC §1(h); §1222
The authority behind it
IRC §1(h); §1222
Every entry in this glossary cites the statute, regulation, or IRS guidance behind it.
Worked example
A founder sells stock held 14 months for a $200,000 gain. At the 15% rate plus NIIT she owes about $37,600. Selling one month earlier, at 11 months, would have taxed the same gain at 35% ordinary rates plus NIIT, roughly $77,600.
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