Capital Gains Tax — Stocks, ETFs, Crypto, and Real Estate Sales

What Is Capital Gains Tax?

When you sell an asset for more than you paid for it, the profit is a capital gain — and it’s taxable. The tax rate depends on how long you held the asset.

$$\text{Capital Gain} = \text{Amount Realized} − \text{Adjusted Basis}$$

• Amount Realized: sale price minus selling costs (commissions, closing costs)
• Adjusted Basis: original purchase price plus capital improvements

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Short-Term vs. Long-Term Rates

Holding Period	Tax Rate
≤ 1 year (short-term)	Ordinary income rate (10%–37%)
> 1 year (long-term)	0%, 15%, or 20%

2024 Long-Term Capital Gains Rates (Single Filers)

Taxable Income	Rate
$0 –$47,025	0%
$47,026 –$518,900	15%
Over $518,900	20%

Key principle: holding an investment for just one day past the 1-year mark can drop your rate from 22–37% (ordinary) to 0–20% (long-term). Timing matters.

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Net Investment Income Tax (NIIT)

High-income taxpayers owe an additional 3.8% NIIT on net investment income (including capital gains).

NIIT threshold (2024)

• Single: $200,000 MAGI
• Married Filing Jointly: $250,000 MAGI

Example

MAGI $300,000 (single) →$100,000 above threshold
NIIT = $100,000 × 3.8$3,800 (if all net investment income)

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Primary Residence Exclusion (§ 121)

The biggest capital gains break available to most homeowners.

Exclusion amounts

• Single: $250,000
• Married Filing Jointly: $500,000

Requirements

• Owned the home for at least 2 of the last 5 years
• Used it as primary residence for at least 2 of the last 5 years
• Have not used the exclusion in the past 2 years

Example

Bought for $300,000; sold for$650,000 (MFJ)

• Gain: $350,000
• Excluded: $500,000 (the gain is fully excluded →$0 tax)

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Stock and ETF Taxation

$$\begin{aligned} &\text{Scenario}: \text{Sell} 100 \text{shares of ABC at} \$80 (\text{bought at} \$50, \text{held} 14 \text{months}) \\ \text{Gain} &= (\$80 − \$50) \times 100 = \$3,000 \text{long-term gain} \\ \text{At} 15\% \text{long-term rate}: \$3,000 \times 15\% &= \$450 \text{tax} \\ \text{At} 22\% \text{short-term rate} (\text{if held less than} 1 \text{year}): \$3,000 \times 22\% &= \$660 \text{tax} \\ &\text{Difference}: \$210 — \text{the cost of impatience} \end{aligned}$$

Wash Sale Rule

Cannot deduct a loss if you repurchase substantially identical securities

within 30 days before or after the sale.

Example:

Nov 15: Sell XYZ at a $2,000 loss

Dec 1: Buy XYZ back

• Loss is DISALLOWED (wash sale)
• Disallowed loss adds to the basis of the new shares

Workaround: wait 31 days, or buy a similar (not identical) ETF immediately

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Cryptocurrency Taxation

The IRS treats cryptocurrency as property, not currency. Every taxable event triggers a capital gain or loss.

Taxable crypto events

✓ Selling crypto for USD
✓ Trading one crypto for another (e.g., BTC → ETH)
✓ Buying goods/services with crypto
✓ Receiving crypto as income (taxed as ordinary income)

Non-taxable

✗ Buying crypto with USD
✗ Transferring crypto between your own wallets
✗ Holding

Example

Bought 1 ETH at $1,000 (Jan 2023) Sold 1 ETH at$3,500 (Mar 2024) — held 14 months
Long-term gain = $2,500 → taxed at 0–20% depending on income

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Tax-Loss Harvesting

Strategically realize losses to offset gains and reduce taxes.

Example:

• Long-term gains realized: $10,000

• Loss harvested from a losing position: −$4,000

• Net taxable gain: $6,000

• At 15%: $6,000 × 15$900 (vs. $1,500 without harvesting)

• Tax saved: $600

Rules:

• Losses first offset same-type gains (short against short, long against long)
• Remaining net loss can offset the other type
• Up to $3,000 of net capital loss can offset ordinary income per year
• Unused losses carry forward indefinitely

Timing:

• Review unrealized losses in November–December
• Harvest before year-end; reinvest to maintain market exposure (watch wash sale rule)

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Carried Interest and Collectibles

Collectibles (art, coins, wine, stamps):

• Long-term rate capped at 28% (not 15/20%)
• Short-term taxed as ordinary income

Carried interest (investment fund managers):

• Performance fees taxed as long-term capital gains if holding period > 3 years
• Subject to ongoing legislative scrutiny

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Practice Quiz

Q1. You bought stock for $5,000 and sold it 11 months later for $8,500. Your marginal income tax rate is 24%. How much is your approximate capital gains tax?

$8,500 − $5,000 = $3,500 short-term gain (held less than 1 year).
Tax = $3,500 × 24% = $840. Had you waited one more month, the long-term rate (likely 15%) would have reduced the bill to $525 — saving $315.

Q2. A married couple bought their home for $400,000 and sold it for $950,000 after living there for 3 years. How much is taxable?

Gain = $550,000. The § 121 exclusion for MFJ is $500,000.
Taxable gain = $550,000 − $500,000 = $50,000.

Q3. You sold Stock A at a $6,000 long-term gain and Stock B at a $2,500 long-term loss. What is your net taxable long-term gain?

$6,000 − $2,500 = $3,500 net long-term gain.