The taxation of capital gains can have a significant effect on your tax savings. If you sell a capital asset, such as stocks, bonds, real estate, or cryptocurrency, after holding it for one year or less, any gain from the sale is subjected to ordinary income taxes.
However, if you hold the asset for more than one year, the gain is treated as long-term capital gains and taxed at a lower rate – either 0%, 15%, or 20%.
This can lead to significant tax savings since the long-term capital gains brackets are designed so that you’ll generally pay tax at a lower rate than if the ordinary tax rates and brackets were applied.