Money Map Tip of the Week

On July 4, 2026, in Latest News, by The Somerville Times

Q: What is the long-term capital gains tax rate, and how can it help me?

A: A capital gain generally occurs when you sell a capital asset—such as a stock, mutual fund, or investment property—for more than you paid for it.

To encourage long-term investing, Congress created special tax rates for many long-term capital gains. As a result, taxpayers who hold certain investments for more than one year may qualify for federal tax rates that are significantly lower than those that normally apply to wages and other ordinary income.

Apart from business investments, here are some of the most common situations where the long-term capital gains tax rates may apply:

• Stocks and mutual funds.
Selling investments you’ve owned for more than one year may qualify for the lower long-term capital gains tax rates.

• Investment real estate.
Selling investment property after holding it for more than one year may qualify for long-term capital gains treatment, although other tax rules may also apply.

The tax savings can be substantial.
As a very rough rule of thumb, many taxpayers who qualify for the long-term capital gains rates pay about 10 percentage points less in federal tax than they would if the same income were taxed as ordinary income. Even more surprising, many married couples filing jointly with taxable income of roughly $100,000 or less in 2026 may qualify for a 0% federal long-term capital gains tax rate, depending on their overall taxable income and filing status.

Bottom Line:
Before selling an investment that has increased in value, check how long you’ve owned it. Simply waiting until you’ve held it for more than one year may qualify you for the lower long-term capital gains tax rates and significantly reduce your federal tax bill.

Any questions? I’m Vincent Hicks, a CPA based in the Cambridge–Somerville area. Reach out at vincent@hickscpasolutions.com or (859) 553-0788.

Disclaimer: This column provides general financial information and should not be considered legal, investment, or tax advice. Always consult a qualified professional for personal guidance.