In plain words
When you sell an investment for more than you paid, the profit is a capital gain. When you sell for less, it’s a capital loss. What you paid, plus some costs, is called your basis.
How a gain is taxed depends on how long you held it:
- Short-term (one year or less): taxed as ordinary income, at your regular bracket.
- Long-term (more than one year): taxed at lower rates of 0%, 15% or 20%.
2026 long-term capital gains rates (by taxable income):
| Rate | Single | Married filing jointly |
|---|---|---|
| 0% | up to $49,450 | up to $98,900 |
| 15% | $49,450 to $545,500 | $98,900 to $613,700 |
| 20% | over $545,500 | over $613,700 |
Higher earners may also owe the 3.8% net investment income tax when modified adjusted gross income is over $200,000 (single) or $250,000 (married filing jointly). Those thresholds aren’t adjusted for inflation.
Gains inside 401(k)s, IRAs and HSAs aren’t taxed when you sell. These rules apply to taxable brokerage accounts.
How it helps real people
Tax-loss harvesting means selling an investment that has fallen in value to “realize” the loss on paper, then buying a similar (but not substantially identical) investment so you stay invested. The loss can:
- Offset capital gains you realized elsewhere that year.
- Offset up to $3,000 of ordinary income ($1,500 if married filing separately) once gains are used up.
- Carry forward to future years with no expiry, for as long as you live.
Wealthy investors do this every year as routine upkeep. Anyone with a taxable account can do the same after a market drop.
The 0% bracket is the other quiet tool. In low-income years, such as early retirement or a sabbatical, you may be able to sell appreciated investments and pay no federal tax on the gain. This is sometimes called gain harvesting: you sell and buy back right away to reset your basis higher. The wash-sale rule doesn’t apply to gains.
A worked example
Illustrative. Carlos is single with $70,000 of taxable income from his job. In 2026 he sells a fund held for three years, with an $8,000 long-term gain. That gain would be taxed at 15%, or $1,200.
He also holds a different fund that’s down $11,000. He sells it and buys a fund that tracks a similar but different index, so his market exposure stays about the same.
| Illustrative amount | |
|---|---|
| Long-term gain | $8,000 |
| Harvested loss | –$11,000 |
| Net capital loss | –$3,000 |
| Deducted against ordinary income | $3,000 |
| Loss carried forward | $0 |
His $1,200 tax on the gain goes away, and the $3,000 deduction saves about $660 more at his 22% bracket. The trade-off: his new fund has a lower basis, so more of its future growth will be taxable when he sells it. These numbers are illustrative only.
Who it’s for
- Investors with taxable brokerage accounts.
- People with realized gains from selling a business interest, property or stock.
- People in low-income years who could use the 0% rate.
Who it’s not for
- People who invest only through 401(k)s, IRAs or HSAs, where gains and losses don’t affect your yearly tax.
- People who would sell and then stay in cash. Being out of the market can cost more than the tax saved.
Risks and trade-offs
- The wash-sale rule. If you buy the same or a substantially identical investment within 30 days before or after the sale, the loss is disallowed for now and added to the new shares’ basis. Buying it in your IRA can also trigger it.
- Deferral, not always savings. Harvesting often lowers your basis, which moves tax into the future. The benefit is real but smaller if you later sell at a higher rate.
- Trading costs and drift. The replacement may not track the original perfectly.
- State tax. Most states tax capital gains as ordinary income.
Common mistakes
- Selling at 11 months. Waiting a few more weeks can move a gain from ordinary rates to long-term rates.
- Triggering wash sales with automatic reinvestment. Dividends reinvested into the same fund within the 30-day window can disallow part of a loss.
- Ignoring the step-up. Assets held until death usually get a new basis equal to their value at death, wiping out the built-up gain for heirs. Selling highly appreciated assets late in life can give up that benefit.
- Forgetting your cost basis records. Inherited and gifted assets have special basis rules. Keep records.
FAQs
Is there a limit on how much loss I can carry forward?
No dollar limit. Unused losses carry forward each year until they’re used, but they end at death.
Do capital gains count toward my tax bracket?
Long-term gains stack on top of your ordinary income. They can push income-based items, like Medicare premium surcharges and Social Security taxation, higher.
Can I harvest losses in my IRA?
No. Losses inside an IRA aren’t deductible.
What is the 0% rate really worth?
For a married couple with modest income, it can let tens of thousands of dollars of gains be realized with no federal tax. State tax may still apply.
What about selling my home?
A main home has its own exclusion: up to $250,000 of gain ($500,000 for married couples) if you meet the ownership and use tests.
Related strategies
- Tax brackets: marginal vs effective rate
- Tax-efficient withdrawal order
- Charitable giving: DAFs, QCDs and appreciated stock
Your next step
Ask VeraLife (/#ask) to explain which of your holdings show gains and losses, and what each would cost to sell.
Education, not advice. Examples are illustrative. VeraLife.ai is not a registered investment adviser, broker-dealer or insurance agency.