Capital Gains
Definition
The profit earned from selling an asset for more than its purchase price, subject to taxation at different rates depending on how long the asset was held.
Capital gains occur when you sell an asset such as stocks, real estate, or collectibles for more than you originally paid. The gain is the difference between the selling price and the cost basis, which includes the original purchase price plus any improvement costs.
Capital gains are classified as short-term (assets held for one year or less) or long-term (held for more than one year). Short-term gains are taxed at your ordinary income tax rate, while long-term gains benefit from preferential tax rates of 0%, 15%, or 20% depending on your taxable income.
Strategies to minimize capital gains taxes include tax-loss harvesting (offsetting gains with losses), holding investments for over a year, using tax-advantaged accounts like IRAs and 401(k)s, and gifting appreciated assets to charity.
Related Calculators
Related Terms
Tax Bracket
financeA range of income levels taxed at a specific rate within a progressive tax system where higher income is taxed at higher rates.
Taxable Income
financeThe portion of your gross income that is subject to income tax after all deductions, exemptions, and adjustments have been applied.
Securities
financeTradable financial instruments including stocks, bonds, and options that represent ownership, debt, or the right to buy or sell an underlying asset.
Return on Investment (ROI)
financeA performance measure used to evaluate the profitability of an investment, expressed as a percentage of the original cost.
Related Articles
How to Calculate Mortgage Payments: Complete Guide
Learn how to calculate your monthly mortgage payment with the amortization formula. Includes examples, tips for getting lower rates, and a free calculator.
Compound Interest Explained: How Your Money Grows Exponentially
Understand compound interest and how it makes your money grow exponentially. Learn the formula, see real examples, and discover strategies to maximize compound growth.
How to Pay Off Debt Fast: Snowball vs Avalanche Method
Learn the two proven strategies to pay off debt fast. Compare the debt snowball and debt avalanche methods with real examples and find which approach works best for you.
How to Calculate Net Worth: Assets, Liabilities & Benchmarks
Learn how to calculate your net worth step by step. Discover what to include as assets and liabilities, and see how your net worth compares to others your age.