How do I calculate my cost basis?

Cost basis = what you paid + commissions/fees. For inherited stock, basis is usually the value at death (step-up). For shares bought at different times, you may use FIFO, specific identification, or average cost.

Are capital gains taxed at the federal level only?

No. Many states also tax capital gains. Check your state's rules. Some states have no income tax.

Do I pay capital gains in my IRA?

No. Traditional IRA/401(k) gains aren't taxed until withdrawal. Roth IRA gains are tax-free if you follow the rules. Capital gains tax applies to taxable brokerage accounts.

Capital Gains Tax: Short-Term vs. Long-Term | Investors Lab

What Are Capital Gains?

When you sell an investment for more than you paid, the profit is a capital gain. It's taxed differently than wages—and the rate depends on how long you held the investment.

Short-Term vs. Long-Term

Short-term: Held 1 year or less. Taxed as ordinary income (same as wages). Rates: 10%–37% depending on bracket.

Long-term: Held more than 1 year. Taxed at preferential rates: 0%, 15%, or 20% depending on income. Much lower than ordinary income for most people.

Long-Term Capital Gains Rates (2024)

0%: Single under $47,025; Married under $94,050
15%: Single $47,025–$518,900; Married $94,050–$583,750
20%: Above those thresholds

Strategies to Minimize Taxes

Hold > 1 year: Biggest single move. Long-term rates are far lower.
Tax-loss harvesting: Sell losses to offset gains. (See our tax-loss harvesting guide.)
Use tax-advantaged accounts: IRAs and 401(k)s defer or eliminate capital gains tax.
Charitable giving: Donate appreciated stock—avoid gains and get a deduction.

Key insight: For most investors, holding investments at least one year is one of the easiest tax savings available.