When you sell an asset for more than you paid for it, the profit is called a capital gain. The IRS taxes that profit, but not all gains are taxed the same way. Understanding the difference can save you a significant amount of money over time.

What is the difference between short-term and long-term capital gains?

The difference between short-term and long-term capital gains is the most important distinction in capital gains taxation.

• Short-term gains apply to assets held for one year or less. These are taxed as ordinary income, meaning you could owe anywhere from 10% to 37%, depending on your tax bracket.
• Long-term gains apply to assets held for more than one year. These benefit from lower, preferential tax rates.

Holding an investment just a few months longer can significantly reduce what you owe the IRS.

What are the federal long-term capital gains tax rates?

For the 2024 tax year, the federal long-term capital gains rates are:

Most middle-income Americans fall into the 15% bracket. Higher earners may also owe an additional 3.8% Net Investment Income Tax (NIIT), bringing their effective rate to 23.8%.

Do you pay capital gains tax when you sell your home?

If you sell your primary home at a profit, the IRS offers an exclusion:

• $250,000 for single filers
• $500,000 for married couples filing jointly

To qualify, you must have lived in the home for at least two of the last five years. According to the National Association of Realtors, the median home price in the U.S. reached $407,100 in 2023, meaning many homeowners are sitting on gains that could eventually trigger taxes.

Investment losses can lower your capital gains tax bill.

You can use investment losses to lower your capital gains tax bill. This is called tax-loss harvesting. If you sell an investment at a loss, that loss can be used to cancel out gains from other sales.

For example:

• You make $10,000 on selling Stock A
• You lose $4,000 on selling Stock B
• You are only taxed on $6,000 in net gains

If your losses exceed your gains, you can deduct up to $3,000 against ordinary income per year. Remaining losses carry forward to future tax years.

How does inheriting an asset affect capital gains taxes?

When you inherit an asset, its cost basis is “stepped up” to the fair market value at the time of the original owner’s death, not what they originally paid.

If your parent bought stock for $10,000 and it was worth $80,000 when they passed, your basis becomes $80,000. If you sell it at that price, you owe nothing in capital gains tax.

This rule benefits millions of American families, particularly those inheriting real estate or investment portfolios.

Investments in a 401(k) or IRA are protected from capital gains taxes.

Investments held inside a traditional 401(k) or IRA grow tax-deferred. You do not pay capital gains tax on transactions inside those accounts, only ordinary income tax when you withdraw in retirement.

With a Roth IRA, qualified withdrawals are completely tax-free, including any gains. According to the IRS, over 70 million Americans hold IRAs, making this one of the most widely used tools for tax-advantaged investing.

Capital gains taxes reward patience. Holding assets longer, using losses strategically, and placing investments in the right accounts are all moves that compound over time. A tax professional can help map out the most efficient approach for your specific situation.

Ten years sounds like a very long time. But for retirement planning, it is actually not that much. But it is still enough time to make a big difference if you are very careful. Here is what you must focus on in the last ten years before you stop working.

Check Your Money

A report from the Federal Reserve in 2023 says that 56% of Americans think they are behind on saving. Sometimes, people just do not know where they stand.

It is better to know the truth, even if the truth is a bit scary. This is because that is how you start to make progress. You can use the calculator from Fidelity or the “estimator” on the ssa.gov website to see your numbers.

Put in More Money

When you are age 50 or older, the IRS lets you put extra money in your accounts. This is called “catch-up contributions.” In 2026, the rules allow you to put up to $31,500 in a 401(k) and $8,500 in an IRA every year. This is more than the normal limits for younger people.

If you could not save a lot of money when you were younger, this time is very important. Usually, you are making the most money of your life right now. You should use this money to save as much as you can.

Kill High-Interest Debt

Taking credit card debt into retirement is very expensive. When you stop working and have a fixed amount of money, it is hard to pay interest rates that are higher than 20%.

If your house loan (mortgage) has a low rate, it is okay. But debt from things you buy with high interest should be gone before you stop. Every dollar you use to pay off a 22% interest card is like getting a 22% reward on your money.

Change Your Investments

When you are 10 years away from stopping work, your money should slowly move to be more stable.

This means less risky things. You do this so that if the market goes down in your ninth year, you do not have to wait longer to retire. A simple way is to make your stocks 1% less every year as you get closer to retirement.

Plan for Health Costs

In America, Medicare starts at age 65. If you want to stop working earlier, you need a plan for the years in between. You should look at plans from the marketplace, COBRA, or your partner’s job now. Do not wait until the last minute.

Finish Paying Your House Loan

If you do not have a house payment (mortgage) when you retire, you need much less money every month. Even if you just pay one extra payment every year during this last decade, it can make your loan finish much faster and save you a lot of money on interest.

Decide How You Will Live

The numbers are important, but you also need to know how you want to live. Will you move to a smaller house? Will you move to a place where things are cheaper? Do you want to travel or work a little bit?

These choices change how much money you need and how long your savings will last. If your plan is not clear, your preparation will not be good.

Ten years is a short time to focus, not a long time to relax. The choices you make right now, about saving money, debt, health, and your investments, will decide the retirement you really get. Start by being honest about where your money is today, and then move forward with a plan.