Question 1

How is capital gain tax calculated?

Accepted Answer

Capital gain tax is calculated based on the profit from selling an asset. Short-term gains (held less than 12 months) are taxed at ordinary income rates up to 35%. Long-term gains (held 12+ months) are taxed at preferential rates of 0%, 15%, or 20% depending on your income level.

Question 2

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

Accepted Answer

Short-term capital gains apply to assets held for less than 12 months and are taxed at your regular income tax bracket (up to 35%). Long-term capital gains apply to assets held for 12 months or more and benefit from lower tax rates of 0%, 15%, or 20% based on your taxable income.

Question 3

Are cryptocurrency gains taxed as capital gains?

Accepted Answer

Yes, cryptocurrency is treated as property by the IRS and subject to capital gains tax rules. When you sell crypto for more than you purchased it, the profit is taxable. The holding period determines whether it's short-term or long-term capital gain.

Question 4

What capital gains tax rate applies to real estate?

Accepted Answer

Real estate capital gains follow the same short-term/long-term rules. However, primary residences may qualify for exclusion: up to $250,000 for single filers or $500,000 for married couples filing jointly, if you lived in the home for 2 of the last 5 years.

Question 5

How can I reduce my capital gains tax?

Accepted Answer

Strategies to reduce capital gains tax include: holding assets longer for lower long-term rates, using tax-loss harvesting to offset gains, maximizing retirement account contributions, donating appreciated assets to charity, and utilizing the primary residence exclusion for real estate.

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Capital Gain Tax Rules