Glossary · Investing and personal finance
Capital gains tax
Capital gains tax is a tax on the profit you make when you sell an asset, such as a stock, a fund or a house, for more than you paid for it.
Also called: CGT, long-term capital gains, tax on investment gains
3.5% of GDP. The record share: 8.7% in 2021.
In plain words
You buy shares for $10,000 and sell them years later for $15,000. The $5,000 profit is a capital gain, and most countries tax it. Until you sell, the gain is only on paper (“unrealized”) and usually not taxed; selling “realizes” it.
In the US the rate depends on how long you held the asset. Sell within a year and the gain is taxed like wages, at your ordinary income-tax rate. Hold it longer and it is a long-term gain, taxed (as of 2026) at 0%, 15% or 20% depending on income, plus 3.8% more for high earners.
Losses count too: a loss on one sale offsets gains on others, and up to $3,000 a year of losses beyond that (as of 2026) can reduce ordinary income. Americans realized about $976B of capital gains in 2023.
Example
Same gain, different holding time
- Buy shares for $10,000; sell them for $15,000. The gain: $5,000.
- Held 11 months, it is a short-term gain, taxed like income. At a 24% rate: $1,200.
- Held 13 months, it is a long-term gain. At the 15% rate: $750.
- Never sold: no tax yet, and the full $15,000 keeps compounding.
The rates are examples from the US system; brackets and rules depend on income, the country and the year.
One level deeper
Because the tax waits until you sell, holding works like an interest-free loan from the government: money that would have gone in tax keeps growing. That is one reason buy and hold investing is tax-efficient. In the US, heirs also get a “step-up in basis”: gains on assets passed on at death are not taxed.
Because people choose when to sell, realized gains swing with markets and with tax rules. They jump in boom years, dip after crashes, and have spiked in years before announced rate increases, when investors sold to lock in the old rate, as in 1986 and 2012.
Countries differ: some exempt long-held assets or a main home, some tax gains like income, some give a yearly tax-free allowance. In the US, gains inside retirement accounts like a 401(k) or an IRA are not taxed when realized; the account’s own rules apply instead. In 2014, the last year with official estimates, the tax paid on gains was about $139B, 19% of the gains.
Realized capital gains in the US, as a share of GDP
The gains Americans reported from selling each tax year. They rise and fall with stock prices, and jump when a change in tax rates is coming. The record share was 8.7% in 2021.
The numbers behind the chart
| Date | Realized gains, % of GDP |
|---|---|
| 1954 | 1.8% |
| 1960 | 2.2% |
| 1970 | 1.9% |
| 1980 | 2.6% |
| 1990 | 2.1% |
| 2000 | 6.3% |
| 2010 | 2.6% |
| 2019 | 4.1% |
| 2020 | 5.4% |
| 2021 | 8.7% |
| 2022 | 4.9% |
| 2023 | 3.5% |
Why it matters
It changes how much of an investment’s return you keep: the same gain can be taxed at very different rates depending on how long you held it and in which account.
It shapes behavior: people delay selling to qualify for the long-term rate or to avoid the tax, which can keep them in investments they would otherwise sell.
It is a large and jumpy source of government revenue, because gains rise and fall with markets.
A common mistake
Myth: If my fund went up this year, I owe capital gains tax.
In fact: Usually only gains you realize by selling are taxed. One exception: funds that sell holdings at a profit pass “capital gains distributions” to their owners, which are taxed even if you sold nothing. Index ETFs rarely make them.
Questions people ask
How much is capital gains tax in the US?
As of 2026, short-term gains, on assets held a year or less, are taxed at ordinary income-tax rates. Long-term gains are taxed at 0%, 15% or 20% depending on taxable income, plus a 3.8% net investment income tax above certain incomes. States may add their own tax.
Do you pay capital gains tax when you sell a house?
In the US (as of 2026), a married couple can usually exclude up to $500,000 of gain on the sale of their main home ($250,000 for a single person) if they owned it and lived in it for at least two of the previous five years. Gains above that are taxed.
What lowers capital gains tax?
In the US, the common legal ways are holding for more than a year (the long-term rate), selling losers to offset gains (tax-loss harvesting), investing through retirement accounts, and giving appreciated assets to charity.
Read more on BigCapital
About the numbers
- The numbers on this page are recalculated from the data every night; the sources are listed at the end of the page.
- US realized capital gains and taxes paid on them: U.S. Department of the Treasury, Office of Tax Analysis (1954-2014); IRS Statistics of Income, Table 1.4 (2015-); U.S. Bureau of Economic Analysis via FRED (GDP).
- This page explains a term. It is not investment advice.