A capital gain is when you sell an investment or an asset for a profit. When you realize a capital gain, the proceeds are considered taxable income. The amount you owe in capital gains taxes depends in part on how long you owned the asset: Long-term capital gains are from an asset you’ve held for more than one year, and short-term capital gains apply to profits from selling an asset you’ve held for less than a year.

Long-Term Capital Gains Tax

Long-term capital gains are taxed at lower rates than ordinary income, and how much you owe depends on your annual taxable income. You’ll owe either 0%, 15% or 20% on gains from the sale of most assets or investments held for more than one year, depending on your annual taxable income (for more on how to calculate your long-term capital gains tax, see below).

When calculating the holding period—or the amount of time you held the asset before you sold it—you should count the day you sold the asset but not the day you bought it. For example: If you bought an asset on February 1, 2019, your holding period started on February 2, 2019, and you would’ve hit the one-year mark of ownership on February 1, 2020.

What Are Long-Term Capital Gains Tax Rates for 2019?

What Are the Long-Term Capital Gains Tax Rates for 2020?

Short-Term Capital Gains Tax

If you’ve held an asset or investment for one year or less before you sell it for a gain, that’s considered a short-term capital gain. In the U.S., short-term capital gains are taxed as ordinary income. That means you could pay up to 37% income tax, depending on your federal income tax bracket.

Federal Income Tax Brackets for 2019