Capital Gains Taxes: The Basics

The short version

When you sell an investment for more than you paid, the profit is a capital gain, and how long you held it decides the tax. Sell within a year and the gain is taxed like ordinary income. Hold longer than a year and it's taxed at 0, 15, or 20 percent, based on your taxable income. That 0 percent bracket is generous, and military pay (with tax-free BAH and BAS shrinking your taxable income) puts many families inside it. Losses can offset gains if you avoid the wash sale trap, and a deployment year with combat-zone tax exclusion can be the best time of your career to lock in gains tax-free.

Short-term vs. long-term: the one-year line

The calendar does most of the work in capital gains tax.

• Short-term (held one year or less): taxed at your ordinary income rates, the same brackets as your basic pay, up to 37 percent.
• Long-term (held more than one year): taxed at 0, 15, or 20 percent. For 2026, the 0 percent rate covers taxable income up to $49,450 single and $98,900 married filing jointly; the 20 percent rate doesn't start until roughly $545,500 single.
• Why this favors troops: "taxable income" excludes BAH, BAS, and combat pay, and comes after your standard deduction. A mid-career family can have a comfortable household budget and still sit in the 0 percent long-term bracket.
• Qualified dividends ride along: most dividends from U.S. stocks and funds get these same lower rates.

Source: IRS

Cost basis, losses, and the wash sale rule

Your gain is sale price minus cost basis, what you paid, including reinvested dividends. Track it, because basis is also how losses become useful.

• Tax-loss harvesting, plainly: sell an investment that's down, use the loss to cancel out gains, and deduct up to $3,000 of leftover loss against ordinary income each year. Extra losses carry forward.
• The wash sale rule: if you buy the same or a "substantially identical" investment within 30 days before or after the losing sale, the loss is disallowed for now. Wait out the window or buy something similar-but-different instead.
• Keep records through PCS chaos: brokers report basis on Form 1099-B, but confirm it, especially for old accounts, transfers, or shares bought before 2011. Free help is available through MilTax and VITA.

Source: IRS

The deployment-year play: gain harvesting at 0 percent

Tax-loss harvesting has a quieter twin: gain harvesting. In a year when your taxable income is unusually low, you can sell winners, pay 0 percent on the long-term gain, and immediately buy them back, resetting your cost basis higher. No wash sale rule applies to gains.

• CZTE years are prime time: months under the combat zone tax exclusion drop your taxable income sharply, which can drop your whole long-term gain into the 0 percent bracket.
• Mind the ceiling: the 0 percent bracket applies to the slice of gains that fits under the threshold; the rest gets taxed at 15 percent. Run the numbers, or have MilTax run them, before you sell.
• Pair it with a taxable account: this move only works in a taxable brokerage account. TSP and IRA gains are already sheltered.

A deployment year can turn a taxable gain into a tax-free one. That's not a loophole. It's the bracket math.

Your house gets special treatment

Selling your home is a capital gain event too, but with a big carve-out.

• The exclusion: up to $250,000 of gain tax-free ($500,000 married filing jointly) if you owned and lived in the home for two of the last five years.
• The military extension: on qualified official extended duty, you can suspend that five-year test for up to ten years. A PCS doesn't have to cost you the exclusion. See IRS Publication 523 for the details before you sell a home you bought on active duty.

Source: IRS

Do this now

1. Check your bracket: pull last year's return, find your taxable income, and see where you sit against the current 0 percent long-term threshold.
2. Audit your holding periods: before selling anything at a profit, confirm you've held it more than a year. A few weeks' patience can cut the rate.
3. Flag low-income years in advance: deployment orders, a mid-year separation, or unpaid leave are your cue to look at harvesting gains at 0 percent.
4. Use free military tax help: MilTax software and base VITA centers handle capital gains reporting at no cost.

FAQ

Do I owe capital gains tax on my TSP or IRA?

No. Gains inside TSP, IRAs, and other retirement accounts aren't taxed as capital gains. Traditional accounts are taxed as ordinary income when you withdraw; Roth withdrawals in retirement are tax-free. Capital gains rules apply to taxable brokerage accounts, real estate, and other property.

If I'm in the 0 percent bracket, is everything I sell tax-free?

Only the long-term gains that fit under the threshold, stacked on top of your other taxable income. Gains above the line get taxed at 15 percent, and your state may tax gains regardless. Short-term gains never qualify for the 0 percent rate.

Does harvesting a loss mean I have to stay out of the market?

No: you just can't rebuy the same or a substantially identical investment within the 61-day wash sale window (30 days before through 30 days after the sale). Many investors swap into a similar-but-not-identical fund so they stay invested while the clock runs.

Sources & links

• IRS, Topic 409, Capital gains and losses: irs.gov
• IRS, Publication 550, Investment income and expenses: irs.gov
• IRS, Topic 701, Sale of your home: irs.gov
• Tax Foundation, 2026 tax brackets: taxfoundation.org