Long-Term Capital Gain or Loss
Candlefocus EditorUnlike short-term capital gains, which are usually taxed at the same rate as ordinary income, long-term capital gains are eligible for special tax treatment. Capital gains are reported on IRS Form 1040 and Form 8949,and the applicable tax rate for long-term capital gains depends on the taxpayer’s income level. Generally, the percentage of taxes on long-term capital gains is either 0, 15, or 20%.
Although long-term capital gains can be attractive due to their lower tax rates, investors must also consider the potential risks associated with long-term investments. They can be more sensitive to market shifts, which can in turn result in larger losses than short-term investments.
A critical advantage of long-term capital losses, however, is their ability to be used to offset long-term capital gains. This could help investors lower their overall tax burden, or even turn a long-term capital loss into a tax refund.
Overall, understanding the distinctions between short-term and long-term capital gains and losses is essential for every investor. Educating oneself about the different tax brackets and rules, as well as how capital gains and losses work, is a necessary step for making more informed and potentially more profitable investment decisions.