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A Taxing Story: Capital Gains and Losses Explained for Retirement Planning
Taxes are a recurring consideration for individuals saving and investing for retirement. One commonly discussed area is how capital gains and losses are treated under federal tax rules. While investment growth can support long-term financial goals, selling investments may trigger tax consequences that are important to understand.
This article provides an educational overview of how capital gains and losses generally work, with a focus on concepts that may be relevant to retirement planning. It is not tax or legal advice, and tax rules may change over time.
What Are Capital Gains?
A capital gain occurs when an investment or asset is sold for more than its original purchase price, also known as its cost basis. Common examples of assets that may generate capital gains include stocks, bonds, mutual funds, exchange-traded funds (ETFs), real estate, and certain collectibles.
Capital gains are generally categorized based on how long the asset was held before it was sold. This holding period plays a significant role in determining how the gain is taxed.
Short-Term Capital Gains
Short-term capital gains apply to assets held for one year or less before being sold. These gains are typically taxed at the same rates that apply to ordinary income, such as wages or interest. As a result, short-term gains may result in higher tax exposure depending on an individual’s overall income.
Long-Term Capital Gains
Long-term capital gains apply to assets held for more than one year. These gains are taxed using separate rate schedules established by federal law. The rates are generally lower than ordinary income tax rates, although they still depend on filing status and taxable income.
Long-Term Capital Gains Tax Brackets (2025)
| Rate | Single | Married Filing Jointly | Head of Household |
|---|---|---|---|
| 0% | $0 – $49,450 | $0 – $98,900 | $0 – $66,200 |
| 15% | $49,451 – $545,500 | $98,901 – $613,700 | $66,201 – $579,600 |
| 20% | $545,500+ | $613,700+ | $579,600+ |
These thresholds are based on current IRS guidance and are subject to legislative updates. Filing status and total taxable income can influence which rate applies.
Additional Net Investment Income Tax
Some taxpayers may also be subject to the Net Investment Income Tax (NIIT). This additional 3.8% tax generally applies when adjusted gross income exceeds certain thresholds:
- $200,000 for single filers or heads of household
- $250,000 for married couples filing jointly
The NIIT can apply to certain investment income, including capital gains, and may increase overall tax liability for higher-income households.
Special Rules for Certain Assets
Not all assets follow the standard long-term capital gains rate structure. For example, collectibles and certain precious metals are generally taxed at a maximum federal rate of 28% when held long term. These rules differ from those applied to stocks or mutual funds and may affect after-tax outcomes.
Understanding Capital Losses
A capital loss occurs when an investment is sold for less than its purchase price. Capital losses can be used to offset capital gains, potentially reducing taxable income from investments.
Offsetting Gains With Losses
If capital losses exceed capital gains in a given tax year, up to $3,000 of the excess loss may generally be used to offset other types of income, such as wages. This limit applies per tax return, not per asset.
Carrying Losses Forward
When total capital losses exceed the annual offset limit, the remaining losses may typically be carried forward to future tax years. These carried-forward losses can continue to offset future gains until they are fully used. Under current law, unused losses are generally eliminated at death.
Why Capital Gains and Losses Matter in Retirement Planning
For individuals approaching or living in retirement, selling investments may be part of a broader income strategy. Understanding how capital gains and losses are taxed can help clarify how investment activity interacts with overall tax exposure.
Tax treatment may vary based on account type, income level, and the nature of the assets involved. Because tax rules can be complex and subject to change, many individuals choose to consult qualified tax professionals before making decisions involving the sale of investments.
This overview is intended to provide general educational information and should not be relied upon as individualized tax guidance.
