How capital gains tax works in the US
Capital gains tax depends on how long you held the asset. Short-term gains (one year or less) are taxed at your ordinary income rate (up to 37%). Long-term gains (over one year) are taxed at 0%, 15%, or 20% depending on your taxable income. For 2024, the 0% bracket runs up to $47,025 single ($94,050 married filing jointly), the 15% bracket goes up to $518,900 single ($583,750 MFJ), and 20% kicks in above that. High earners also face an extra 3.8% Net Investment Income Tax above $200K single / $250K MFJ.
You bought VTI for $50,000 and it’s now worth $80,000. Sell at month 11, you owe ordinary tax on the $30,000 gain. In the 24% bracket, that’s $7,200. Hold one more month past the year, the rate drops to 15%, that’s $4,500. A single month of patience saved $2,700. Even better, if your taxable income is under the 0% threshold in a low-earning year, the same gain can be tax-free.
Selling a winning position in month 11 because you’re nervous. Unless the thesis has actually broken, the after-tax math almost always favors waiting out the long-term holding period. Set a calendar reminder for the one-year mark on every buy.
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