Financial Answer Center |
A capital gain results when you sell a capital asset for more than the purchase price (cost basis). A capital asset is generally defined as an asset owned for personal or investment purposes. The tax rate on a capital gain is based on your marginal tax bracket and how long you held the asset before you sold it. In order for capital gains to be taxed at preferential rates, the combination of all your securities sales for the year must result in a net long-term capital gain. In other words, after you offset all your capital gains and losses for the year, you must end up with a net long-term capital gain.
The maximum tax rate on net long-term capital gain is generally 20% and 15% for those in lower tax brackets. Investments must be held for more than one year to qualify for these preferential rates. Gain on property held for one year or less is treated as short-term capital gain, subject to tax at the same rates as ordinary income.
Taking advantage of these rates will ease the tax bite when you are ready to sell your investments for cash to pay college tuition bills
