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Money systems

Lesson 54 · Written for kid, teen, and little

Capital gains tax

In the U.S., holding longer than a year may change how a gain is taxed.

The idea

When you sell an investment for more than its tax basis, the difference is generally a capital gain. In the U.S., gains on investments held for more than a year often qualify for different tax rates than short-term gains. The rate depends on income, the asset and tax rules, so holding longer does not always mean a smaller tax bill. Time also does not guarantee an investment gain. 🧾

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Words to know

6

Capital gain

The profit you make when you sell an investment for more than you paid.

Capital gains tax

A tax that may apply to a profit when you sell an investment. Whether you owe it depends on the account, your income and other tax rules.

Short-term vs long-term

In the U.S., gains on investments held one year or less are generally short-term; more than one year is long-term. Long-term gains can qualify for lower tax rates, depending on your situation.

Roth IRA

A retirement account funded with after-tax money. Investment growth is not taxed each year inside the account, and qualified withdrawals can be tax-free.

Tax-loss harvesting

Selling a losing investment so the loss can lower the tax on your gains.

Income bracket

The tax rate that applies to your income; short-term gains are taxed at this rate.

Try it — no accountMatch the pairs

Match each timeline to how the IRS taxes your gains.

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In the full lesson

  1. 1Match the pairs

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