Question 1

What's the difference between short-term and long-term capital gains?

Accepted Answer

Short-term capital gains (assets held ≤1 year) are taxed as ordinary income at rates from 10-37%. Long-term gains (assets held >1 year) receive preferential rates of 0%, 15%, or 20% depending on your income. Holding longer can save you significant taxes.

Question 2

Do I pay capital gains tax on my 401(k) or IRA withdrawals?

Accepted Answer

No. Retirement accounts like 401(k)s and IRAs grow tax-deferred. Withdrawals are taxed as ordinary income, not capital gains, regardless of how long you held the investments inside the account.

Question 3

Can I offset capital gains with capital losses?

Accepted Answer

Yes. Capital losses offset capital gains dollar-for-dollar, regardless of whether they're short-term or long-term. If you have excess losses after offsetting all gains, you can deduct up to $3,000 against ordinary income per year. Remaining losses carry forward to future years.

Question 4

How much capital gains tax do I owe on selling my home?

Accepted Answer

Primary residence: If you lived in your home for 2 of the past 5 years, you can exclude up to $250,000 ($500,000 married) of capital gains tax-free. Investment property: You pay capital gains tax on the full profit, plus depreciation recapture at 25% on any depreciation you claimed.

Question 5

What is the Net Investment Income Tax (NIIT)?

Accepted Answer

NIIT is an additional 3.8% surtax on investment income (including capital gains) if your Modified Adjusted Gross Income exceeds $200,000 (single) or $250,000 (married filing jointly). This is on top of regular capital gains taxes.

Question 6

Does my state tax capital gains?

Accepted Answer

It depends. Nine states have no income tax (AK, FL, NV, NH, SD, TN, TX, WA, WY). Most other states tax capital gains as ordinary income at their regular state tax rates. A few states like California have high rates (up to 13.3%), while others like Pennsylvania have flat rates around 3%.

Question 7

How do I report capital gains on my tax return?

Accepted Answer

Report capital gains on IRS Form 8949 (Sales and Other Dispositions of Capital Assets) and Schedule D (Capital Gains and Losses). Your broker will send you Form 1099-B showing your sales. For crypto, you need to track your own transactions and cost basis.

Question 8

Can I gift stock to avoid capital gains tax?

Accepted Answer

Partially. You can gift up to $18,000/year ($36,000 married) per recipient tax-free under the annual gift tax exclusion. The recipient inherits your cost basis and will pay capital gains when they sell. If they're in a lower tax bracket (like the 0% capital gains bracket), they may pay little to no tax.

Capital Gains Tax Calculator

Key Financial Terms

Capital Gains

Cost Basis

Tax-Loss Harvesting

Wash Sale Rule

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