The capital gains tax rate long term in the United States is 15 percent. A capital gain is on a gain made on an investment that has been held for a period of more than 12 months. This is in contrast to the short term capital gains tax rate of 35 percent for assets held less than 1 year.
The capital gains tax can be used mitigate losses. Capital losses are used to reduce the taxation on a capital gain since they can be deducted. This is discussed briefly below.
Long Term Capital Gains
The long term capital gains tax is seen as a way to ensure that some taxes are paid on investments made and that an investor is not seeking ways to avoid contributing to the general treasury of the United States. Holding an investment gain longer than 1 year is good for many investors who are seeking to avoid the more punitive short term capital gains tax but may still seem high or a disincentive to invest in the market.
Minimizing Capital Gains with a Capital Loss
A capital loss conversely is the reduction in value of an investment that is held more than 1 year. Capital losses, as they accumulate, create an opportunity for investors to lower their long term capital gains tax. This is accomplished by using a capital loss against a capital gain, resulting in a partial offset or wash. This method helps to mitigate a capital loss long term and reduce the amount of long term capital gains tax that is owed.