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Losses offset gains first
Short-term losses net against short-term gains, long-term against long-term, and then the two results net against each other.
Charles Trautman, EA · Since 1969
Why the same $20,000 profit can cost nothing, $3,000 or $4,760, depending on who sells it.
When you sell stock, real estate or other investments for more than you paid, the profit is a capital gain. How it is taxed depends mostly on how long you owned the asset and on what else is on your return. For a surprising number of retirees and moderate-income families the rate is zero. The rules around basis, losses and timing are where the money is made or lost.
Current as of October 2026 · Figures are for tax year 2026
One year and a day is the line that matters most.
Short-term gains, on assets held one year or less, are taxed like wages at your ordinary bracket rate. Long-term gains, on assets held more than one year, get their own lower rates. Qualified dividends get the same rates. Selling on the one-year anniversary is still short-term.
| Rate | Single | Married filing jointly |
|---|---|---|
| 0% | Taxable income up to $49,450 | Up to $98,900 |
| 15% | Up to $545,500 | Up to $613,700 |
| 20% | Above $545,500 | Above $613,700 |
Thresholds are taxable income, after the standard or itemized deduction, and include the gain itself. Add the 3.8% net investment income tax above $200,000 of modified AGI single or $250,000 joint, which brings the top combined federal rate to 23.8%.
Long-term gains sit on top of your other income. The part that lands below the line is taxed at zero.
Think of your taxable income as a stack. Wages, pensions, IRA withdrawals and interest go on the bottom and are taxed at the ordinary brackets. Long-term gains and qualified dividends go on top. Whatever part of that top layer sits below $49,450 single or $98,900 joint is taxed at 0%; the part above is taxed at 15%.
Take a married couple with $70,000 of ordinary taxable income who sell stock for a $40,000 long-term gain. The stack now reaches $110,000. The first $28,900 of the gain, from $70,000 up to the $98,900 line, is taxed at 0%. The remaining $11,100 is taxed at 15%, or $1,665. The gain cost them about 4%, not 15%. Had they sold $28,900 worth in December and the rest in January, this year’s tax would have been zero.
A retired couple living on Social Security and a modest pension can often sell appreciated stock every year without federal tax on the gains, as long as the stack stays under the line.
Before a client sells a large position we run the return both ways. A gain raises adjusted gross income, and AGI drives the taxable share of Social Security, the Medicare premium two years out, the senior deduction phase-out and the Marketplace premium credit. A gain taxed at 0% can still cost a retiree real money through one of those side doors. Splitting the sale across two tax years is often the whole answer. How Social Security is taxed.
Your gain is the sale price minus your basis. Get the basis wrong and you pay tax on money you never made.
Basis starts with your purchase price, including commissions. For property, add the cost of improvements: a new roof, a finished basement, an addition. Keep those receipts as long as you own the property.
Every dividend you reinvested was taxed the year you received it, and every one added to your basis. Investors who report only the original purchase as basis overpay, sometimes by thousands. Brokers track this for most holdings, but not for shares bought before the reporting rules began or moved between firms.
Property you inherit takes a new basis equal to its value on the date of death. Stock your father bought for $5,000 and left you at a value of $50,000 has a $50,000 basis; sell it and there is no gain. Jointly owned property between spouses steps up by half. The final return and the estate.
Property you receive as a gift keeps the giver’s basis. The same $5,000 stock given to you during your father’s life has a $5,000 basis in your hands, and the $45,000 gain is yours to pay tax on. For appreciated assets, inheriting usually beats receiving a gift, which is worth knowing before an aging parent signs over the house. Gift and estate tax.
If you bought a stock at several prices, you can tell the broker which lot to sell. The default is first-in, first-out, which usually sells the oldest, cheapest shares and the biggest gain. The choice has to be made before the trade settles.
Losses are useful. The rules on when you may use them are strict.
Short-term losses net against short-term gains, long-term against long-term, and then the two results net against each other.
If losses exceed gains, up to $3,000 of the excess reduces wages, pension and other ordinary income each year. The rest carries forward to future years without expiring in your lifetime. A $30,000 loss with no gains to absorb it takes ten years to use up.
The carryforward is easy to lose. It lives on a worksheet in last year’s return, not on any form the IRS sends you. When clients change preparers it is often dropped. Bring last year’s complete return.
You cannot sell a stock for a loss and buy it, or something substantially identical, back within 30 days before or after the sale and still claim the loss. The disallowed loss is added to the basis of the new shares, so it is deferred rather than gone. Reinvested dividends can trigger one by accident.
Brokers report wash sales within one account, not across accounts, and not when the repurchase happens in your IRA. A loss in a taxable account followed by the same fund bought in an IRA is a wash sale the broker will not flag, and the loss is gone for good, since basis cannot be added to IRA shares. We ask about every account before finalizing Schedule D.
A few kinds of gain follow their own rates or their own rules.
Gain on the sale of a main home you owned and lived in long enough is excluded up to a generous limit, and most sellers owe nothing. The rules and the exceptions are on their own page. Selling your home.
Depreciation you took, or should have taken, is taxed at up to 25% when you sell, before the regular long-term rates apply to the rest of the gain. On a rental held twenty years it is often the largest part of the tax.
Coins, precious metals, art, antiques and some gold funds are taxed at a maximum 28% long-term rate instead of 15 or 20.
A fund that sells winners inside the portfolio passes the gain to you as a distribution, usually in December. You owe tax on it whether you reinvested or not, even if the fund’s price fell that year.
The 3.8% surtax applies to the lesser of your net investment income or the amount your modified AGI exceeds $200,000 single or $250,000 joint. A one-time gain from selling a business or a rental can pull an ordinary family over those lines for a single year. The tax code for high earners.
No preferred rate here.
Colorado starts from federal taxable income and applies its flat 4.40% rate to all of it. Long-term gains, short-term gains, dividends and wages are taxed alike, so a $20,000 gain taxed at 0% federally still costs $880 in Colorado. Losses, carryforwards and basis follow the federal figures. There is no separate Colorado capital gains schedule and no state version of the net investment income tax. Colorado income tax.
Yes, if the one you sold had a gain. Reinvesting does not defer anything outside a retirement account. Crypto works the same way: digital assets on your return.
The broker is reporting the sale price but does not know your basis, usually because the shares were bought before the reporting rules or transferred in from elsewhere. You still get to use your real basis; you just have to prove it.
No. Losses on personal-use property are not deductible, even though gains on the same property are taxable. Form 1099-K and selling personal items.
It depends on how much room is left under the 0% line this year compared with next. Call 303-734-1040 in the fall and we will run it.
The best time to figure the tax on a gain is before the sale, when the year it lands in can still be changed. In person in Lone Tree or remotely, year round.
This page is general information, current as of October 2026, and is not advice about your situation. Tax law changes every year. Confirm anything that matters to you with us or at the sources below.