Long-term gain.
In plain English
A long-term capital gain is the profit from selling an investment you held for more than a year. The reward for waiting is a lower tax rate: long-term gains are taxed at 0, 15, or 20 percent for most people, depending on income, well below the ordinary rates that hit short-term gains and wages. The holding period is measured from the day after you buy to the day you sell, and crossing the one-year mark is often worth planning around.
01Why it matters
Holding an investment just past a year can cut the tax on your profit substantially, sometimes all the way to zero.
02The math, step by step
You sell a fund for a 4,000 dollar profit after holding it 15 months. Because you held it more than a year, the gain is long-term and taxed at 15 percent, or 600 dollars, instead of your higher ordinary rate.
03What this is NOT
A long-term gain is NOT the same as a short-term gain. The dividing line is a holding period of more than one year, which qualifies the gain for the lower long-term rates.
04Receipts
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Plain-English answers from our glossary. Receipts included. Never advice.
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