Capital Gains & Dividends
Short-term vs long-term rates, qualified vs ordinary dividends, holding periods, and the 0% bracket
An investor buys 100 shares of NVDA at $50 in March 2023 and sells at $130 in February 2024 — eleven months later. The $8,000 gain is taxed at her ordinary income rate: 32%. She pays $2,560 in federal tax.
Had she waited one more month — selling in April 2024, past the one-year mark — the same $8,000 gain would be taxed at the long-term capital gains rate: 15%. She would pay $1,200. Thirty days of patience saved $1,360, a 17% improvement on the after-tax gain.
The tax code does not reward stock-picking skill. It rewards holding period discipline. The IRS draws one bright line: hold an asset for more than one year (366+ days) and any gain is "long-term," taxed at preferential rates of 0%, 15%, or 20%.
Sell at 365 days or fewer and the gain is "short-term," taxed at your ordinary income rate — which ranges from 10% to 37%.
That is the opening. Finishing a lesson is where it stops being interesting and starts being useful: the full lesson runs to 5 sections and ends with 5 practice questions. A free account is what opens the rest, and the other 255 lessons in the Academy with it. No card.
What this lesson covers
- 1The holding period rule
- 22025 long-term capital gains brackets (federal)
- 3The Net Investment Income Tax (NIIT)
- 4The cost of short-term vs long-term: $10,000 gain
- 5Qualified vs ordinary dividends