Made money on your investments? That’s awesome! But here’s the thing nobody tells you: the government wants a piece of your profits. It’s called capital gains tax, and it can cost you over $1,000 more than necessary if you don’t know one simple timing rule.

Don’t worry – it’s not as scary as it sounds. Once you understand these basics, you can legally keep hundreds or thousands more of your hard-earned money.

What Are Capital Gains?

Simple: You buy something, sell it for more money, and the profit is your capital gain.

• Buy stock for $100, sell for $150 = $50 capital gain
• Buy a rental house for $200,000, sell for $250,000 = $50,000 capital gain

That’s it. The government taxes that profit.

The One Rule That Can Save You $1,100+

Here’s the most important thing to know: how long you hold an investment can cut your tax bill in half.

Hold It Less Than a Year = You Pay More

Sell within a year? Your profit gets taxed like regular income. If you’re in the 22% tax bracket, you pay 22% on your gains. Ouch.

Example: Make $5,000 profit in 6 months → Pay $1,100 in taxes (22%)

✅ Hold It More Than a Year = You Pay Way Less

Wait just one year and one day? You get special “long-term” rates that are much lower.

Same example: Make $5,000 profit after holding 13 months → Pay $0 to $750 in taxes

Your savings: $350 to $1,100 just for waiting!

2025 Tax Rates Made Simple

If you held your investment over a year, here’s what you’ll pay:

$0 (that’s right, zero!) if you make:

• Single person: Under $48,350 per year
• Married couple: Under $96,700 per year

15% if you make:

• Single person: $48,350 to $533,400
• Married couple: $96,700 to $600,050

20% if you make more than those amounts

Most people fall into the 0% or 15% range. Compare that to regular income tax rates of 22%, 24%, 32%, or higher!

Warning: Rich People Pay Extra

If you make over $200,000 (single) or $250,000 (married), you pay an extra 3.8% tax on investment profits. So your 15% rate becomes 18.8%, and 20% becomes 23.8%.

Still better than regular income tax rates, but something to know about.

Turn Your Investment Losses Into Tax Savings

Lost money on some investments? Here’s how smart investors turn those losses into money back from the IRS.

Here’s how it works:

• Made $3,000 profit on Apple stock
• Lost $1,000 on Netflix stock
• Sell both: You only pay tax on $2,000 profit instead of $3,000

If your losses are bigger than your gains, you can subtract up to $3,000 from your regular income each year. Leftover losses? Save them for next year.

Real example: You made $5,000 on some stocks but lost $8,000 on others. Sell everything, and you can reduce your regular income by $3,000 (putting $660+ back in your pocket). The extra $5,000 loss carries over to next year.

Big Mistake: The Wash Sale Trap

The IRS isn’t stupid. They won’t let you sell a stock at a loss for tax benefits, then immediately buy it back.

The rule: If you sell a stock at a loss and buy the same stock (or something very similar) within 30 days, you lose the tax benefit.

What gets people in trouble: Selling an S&P 500 fund at a loss, then buying a different S&P 500 fund the next day. The IRS says “nice try” and takes away your tax deduction.

How to avoid this: Wait 31 days before buying back the same thing, or buy something different that’s not too similar.

5 Simple Ways to Pay Less Tax on Investments

1. Use retirement accounts for active trading Buy and sell whatever you want in your 401(k) or IRA – zero capital gains tax while the money stays there.

2. Master the 366-day rule
That one-year-and-one-day waiting period can save you over $1,000 on a $5,000 gain. Set a calendar reminder.

3. Harvest your losses before December 31st Turn bad investments into tax savings. Just don’t buy the same thing back for 31 days.

4. Spread out big sales Instead of selling $100,000 of stock in one year, sell $50,000 this year and $50,000 next year. Could save you thousands by staying in a lower tax bracket.

5. Keep simple records Write down when you bought investments and what you paid. A basic spreadsheet saves headaches later.

When to Get Help

Call a tax pro if you:

• Made over $50,000 in investment profits this year
• Own rental property
• Have complicated investments
• Are confused and don’t want to mess up

They can save you way more than they cost.

The Bottom Line

Making money investing is great. Paying taxes on it? Not so fun, but it’s part of the deal.

The good news: You can legally cut your tax bill by understanding these simple rules:

• Wait over a year for rates as low as 0% instead of 22%+
• Use your losses to offset gains and get money back from the IRS
• Don’t buy back the same thing within 30 days of selling at a loss
• Keep simple records and know when you bought what

Remember: Paying 15% tax on a great investment beats paying 0% tax on money sitting in a savings account earning nothing. The goal is to invest smart and keep more of what you make.

Key Takeaways

• Hold investments over one year to get much lower tax rates (0%, 15%, or 20% vs. regular income rates)

• Use investment losses to offset gains and reduce your tax bill

• Don’t buy back the same investment within 30 days of selling it at a loss

• Keep records of when you bought investments and what you paid

• Most people pay 0% or 15% on long-term investment gains