Long-term capital gains refer to the profits made from the sale of an asset held for longer than a year, usually taxed at a lower rate compared to short-term gains.
Long-term capital gains are the profits realized from the sale of an asset that has been owned for more than one year. This category of capital gains is distinguished from short-term capital gains, which result from the sale of assets held for one year or less. The U.S. Internal Revenue Service (IRS) and many other tax authorities around the world typically tax long-term capital gains at a lower rate than short-term gains due to the intention of encouraging long-term investment.
In the United States, long-term capital gains are taxed at a preferential rate compared to ordinary income and short-term capital gains. For the 2023 tax year, the long-term capital gains tax rates are:
Qualified dividends are taxed at the same rate as long-term capital gains, providing an additional benefit for investors holding dividend-paying stocks for more than 60 days within the 121-day period that begins 60 days before the ex-dividend date.
If an individual purchases a property for $200,000 and sells it eight years later for $350,000, the gain of $150,000 (minus any applicable deductions) is considered a long-term capital gain.
An investor buying shares at $50 per share and selling them two years later at $100 per share will realize a long-term capital gain of $50 per share, taxed at the preferred long-term capital gains rate.