Question 1

What is the difference between short-term and long-term capital gains?

Accepted Answer

Short-term capital gains arise from assets sold within 1 year of purchase and are taxed as ordinary income (10%–37%). Long-term capital gains come from assets held more than 1 year and are taxed at preferential rates of 0%, 15%, or 20% depending on your taxable income. Waiting the extra time to qualify for long-term rates can substantially reduce your tax burden.

Question 2

What is cost basis and how do I calculate it?

Accepted Answer

Cost basis is generally what you paid for the asset, plus any commissions or fees. For stocks purchased in multiple transactions, you can use different accounting methods (FIFO, specific identification, average cost for mutual funds) to determine which shares you're selling. Reinvested dividends also add to your cost basis. Inherited assets generally receive a "stepped-up" basis equal to the fair market value at the date of the decedent's death, eliminating pre-death appreciation from taxation.

Question 3

Do I pay capital gains tax when I sell my home?

Accepted Answer

Many home sellers owe no federal capital gains tax. The primary residence exclusion allows you to exclude up to $250,000 of gain ($500,000 married filing jointly) from federal tax, provided you lived in the home as your primary residence for at least 2 of the last 5 years. Gains above this threshold are taxed at long-term capital gains rates (assuming you held for more than 1 year).

Question 4

What is the Net Investment Income Tax (NIIT)?

Accepted Answer

The NIIT is an additional 3.8% tax on the lesser of net investment income or the excess of modified AGI over $200,000 (single) or $250,000 (married filing jointly). It applies to capital gains, dividends, interest, rental income, and other investment income. It was established by the Affordable Care Act to help fund Medicare and applies to high-income taxpayers.

Question 5

Can capital losses offset capital gains?

Accepted Answer

Yes. Capital losses can offset capital gains dollar for dollar. If your losses exceed your gains, you can deduct up to $3,000 of net capital losses against ordinary income per year. Any remaining losses carry forward to future years indefinitely. This is why tax-loss harvesting — deliberately selling losing positions to offset gains — is a common tax planning strategy.

Question 6

Do states tax capital gains?

Accepted Answer

Most states tax capital gains as ordinary income at the state rate — California taxes all capital gains at ordinary income rates (up to 13.3%), for example. A few states have favorable treatment: some have no income tax (Texas, Florida), and a few have lower rates for long-term gains. Our calculator estimates federal tax only; add your state rate to get the full picture.

Rate	Single Filers	Married Filing Jointly
0%	$0 – $47,025	$0 – $94,050
15%	$47,026 – $518,900	$94,051 – $583,750
20%	Over $518,900	Over $583,750

Capital Gains Tax Calculator 2026

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Capital Gains Tax Estimate