# Capital gains

Canonical URL: https://olomon.com/financial-glossary/capital-gains
Markdown twin: https://olomon.com/financial-glossary/capital-gains/llms.txt
Category: Taxes & Business (https://olomon.com/financial-glossary/categories/taxes-business)
Also known as: Capital gain, Realized gain
Last updated: 2026-05-03

## Definition

Capital gains are the profits realized when a capital asset — such as stock, real estate, or a business interest — is sold for more than its adjusted cost basis. They are taxed as short-term (held one year or less, taxed at ordinary income rates) or long-term (held more than one year, taxed at preferential rates of 0%, 15%, or 20% depending on income).

## Key takeaways

- Short-term gains (held ≤ 1 year) are taxed at ordinary income rates.
- Long-term gains (held > 1 year) are taxed at 0%, 15%, or 20% depending on taxable income.
- High-income taxpayers may also owe a 3.8% Net Investment Income Tax.
- Cost basis tracking is essential — missing or wrong basis is one of the most expensive recordkeeping mistakes.

## How Olomon thinks about this

_The following section is Olomon's first-party perspective, informed by our work building a financial system of record. It is intentionally separated from the neutral definitional content above._

Cost basis is one of the most under-managed numbers in a household's financial life. Olomon stores basis at the lot level for taxable holdings, surfaces holding-period status, and ties realized gains and losses to the documents that prove them — making capital-gains decisions defensible, not approximate.

## Quick facts

| Fact | Value | As of |
|------|-------|-------|
| Short-term holding period | ≤ 1 year (taxed as ordinary income) | — |
| Long-term holding period | > 1 year | — |
| Long-term federal rates | 0%, 15%, or 20% (income-based) | 2026 |
| 0% bracket — single | Taxable income up to $49,450 | 2026 |
| 15% bracket — single | $49,450 to $545,500 | 2026 |
| Net Investment Income Tax | 3.8% (above MAGI thresholds) | 2026 |
| Annual ordinary-income offset cap | $3,000 ($1,500 MFS) | — |
| Reporting forms | Schedule D + Form 8949 | — |

## In-depth definition

Capital-gains tax is one of the largest discretionary line items in many households' tax pictures — because the timing of sales, choice of lots, harvesting of losses, and use of strategies like 1031 or 1202 are all decisions you control. The starting point for every one of those decisions is accurate cost basis.[1]

Capital gains and losses are reported to the IRS on Schedule D and Form 8949[2]; only realized gains are taxable, and the holding-period clock determines whether they're taxed as short-term (ordinary income) or long-term (preferential rates).[1]

## Formula

```
Capital Gain = Sale Price − Adjusted Cost Basis
```

Adjusted basis is your original purchase price plus capital improvements, less depreciation and certain adjustments. The gain is the difference between your net sale proceeds and that adjusted basis.

## Frequently asked questions

### How long do I need to hold an asset for long-term treatment?

More than one year. The IRS measures from the day after acquisition to the day of sale.

### Can capital losses offset other income?

Capital losses first offset capital gains. Up to $3,000 of net loss can offset ordinary income each year ($1,500 if married filing separately); the rest carries forward.

## Sources

1. [Topic No. 409, Capital Gains and Losses](https://www.irs.gov/taxtopics/tc409) — Internal Revenue Service (IRS). Cited for: Authoritative IRS treatment.
2. [About Schedule D (Form 1040)](https://www.irs.gov/forms-pubs/about-schedule-d-form-1040) — Internal Revenue Service (IRS). Cited for: Reporting capital gains and losses.
3. [IRS releases tax inflation adjustments for tax year 2026](https://www.irs.gov/newsroom/irs-releases-tax-inflation-adjustments-for-tax-year-2026-including-amendments-from-the-one-big-beautiful-bill) — Internal Revenue Service (IRS). Cited for: 2026 long-term capital gains brackets (Rev. Proc. 2025-32).

## Related terms

- [1031 exchange](https://olomon.com/financial-glossary/1031-tax-exchange)
- [1202 gain exclusion](https://olomon.com/financial-glossary/1202-gain-exclusion)
- [Tax-advantaged account](https://olomon.com/financial-glossary/tax-advantaged-account)
- [Appreciating asset](https://olomon.com/financial-glossary/appreciating-asset)

## Cite this page

Olomon Editorial Team. (2026). Capital gains. Olomon Financial Glossary. https://olomon.com/financial-glossary/capital-gains

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