What Qualifies As Capital Gains?

Capital gains taxes can significantly impact an investor’s retirement income strategy. Whether you’re selling investments, downsizing your home, or managing withdrawals from a taxable account, understanding how capital gains are taxed is key to avoiding unexpected tax bills and preserving your nest egg. Thoughtful planning can help you minimize capital gains taxes and make the most of your retirement assets.

What Are Capital Gains?

Capital gains are the profits earned when you sell an asset for more than you originally paid for it. These assets can include stocks, bonds, real estate, and even collectibles. The difference between the purchase price and the sale price is your capital gain. Gains are categorized as:

Short-term: held for one year or less, taxed as ordinary income
Long-term: held for more than one year, taxed at reduced rates (0%, 15%, or 20%)

Only realized gains (when the asset is sold) are taxable, not unrealized value increases.

Sold assets that typically count as capital gains include:

Stocks, bonds, and mutual funds
Real estate (excluding your primary residence if exempt)
Businesses and valuable collectibles (e.g., art, coins)
Cryptocurrency

To qualify as a capital gain, the asset must be sold, not just appreciated in value. If sold at a loss, it’s considered a capital loss, which can offset gains for tax purposes.

How Do I Calculate My Capital Gains Tax?

Start by determining your gain: subtract your adjusted basis (purchase price + improvements or fees) from the sale price. Then determine whether it is a short-term or long-term gain:

Short-term gains (held ≤ 1 year) are taxed at your regular income rate
Long-term gains (held > 1 year) are taxed at 0%, 15%, or 20%, depending on your income

Apply any capital losses to reduce the taxable gain. Be sure to factor in transaction fees or commissions, which can adjust your cost basis and reduce taxable income.

Example:
Let’s say you bought stock for $10,000 and later sold it for $18,000.

Capital Gain = Sale Price – Purchase Price
Capital Gain = $18,000 – $10,000 = $8,000

If this is a long-term gain and you’re in the 15% capital gains bracket, your tax would be:

Capital Gains Tax = $8,000 × 0.15 = $1,200

If you’re in the 0% bracket, you may owe no tax at all.

Who Is Exempt From Capital Gains?

Certain individuals and situations are partially or fully exempt from capital gains tax:

Homeowners: You may exclude up to $250,000 ($500,000 for married couples) when selling your primary residence, if you meet ownership and use requirements.
Low-income earners: Those in the lowest tax brackets may pay 0% on long-term capital gains.
Inherited property: Gains are based on the “stepped-up basis” (value at date of death), often reducing or eliminating taxable gains.

Capital losses and retirement accounts can also reduce or defer taxes on gains.

How Do You Avoid Capital Gains Tax?

While you may not avoid capital gains tax entirely, several strategies can reduce or eliminate your liability:

Hold long-term: Assets held over a year qualify for lower tax rates.
Offset with losses: Sell underperforming assets to offset gains.
Use the primary residence exclusion.
Donate appreciated assets: You avoid the gain and may get a deduction.
Invest through IRAs or 401(k)s: Gains grow tax-deferred or tax-free.
Time sales strategically: Sell in lower-income years or spread gains across tax years.

A tax professional can help tailor these to your situation.

What Should Retirees Consider With Regards To Capital Gains Tax?

Retirees should pay close attention to how capital gains impact their overall taxable income. Even modest gains can push Social Security benefits into the taxable range or move them into a higher tax bracket. Long-term capital gains may be taxed at 0% if total taxable income stays below certain thresholds ($47,025 for single filers, $94,050 for married couples in 2025).

Retirees should consider:

Timing asset sales to stay in lower brackets.
Offsetting gains with losses.
Using tax-advantaged accounts.
Coordinating withdrawals and gains to minimize overlap in taxable income.

Want to learn more about capital gains tax and how it affects retirement strategies? Contact Zynergy Retirement Planning today!