Capital Gain
A capital gain is the profit realized when an investment or asset is sold for more than its original purchase price, subject to taxation based on holding period.
🎬 Video Explanation
Exam Tip
Long-term (>1 year) = lower tax rates. Short-term = ordinary income. Wash sale = 30 days.
What is a Capital Gain?
A capital gain occurs when you sell an asset for more than you paid for it. The difference between your sale price and purchase price (cost basis) is your capital gain.
Capital Gain Formula
Capital Gain = Sale Price - Cost Basis
Example:
- Bought stock for $1,000
- Sold stock for $1,500
- Capital Gain = $500
Short-Term vs. Long-Term
| Type | Holding Period | Tax Rate |
|---|---|---|
| Short-Term | 1 year or less | Ordinary income rates (up to 37%) |
| Long-Term | More than 1 year | 0%, 15%, or 20% |
Long-Term Capital Gains Rates (2025)
| Filing Status | 0% Rate | 15% Rate | 20% Rate |
|---|---|---|---|
| Single | Up to $48,350 | $48,351-$533,400 | Over $533,400 |
| Married Filing Jointly | Up to $96,700 | $96,701-$600,050 | Over $600,050 |
Capital Loss
When you sell for less than your cost basis, you have a capital loss. Losses can offset gains and up to $3,000 of ordinary income per year.
Wash Sale Rule
If you sell a security at a loss and buy the same (or substantially identical) security within 30 days before or after, the loss is disallowed for tax purposes.
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