Capital Gains Tax


DEFINITION of 'Capital Gains Tax'

A type of tax levied on capital gains incurred by individuals and corporations. Capital gains are the profits that an investor realizes when he or she sells the capital asset for a price that is higher than the purchase price.

Capital gains taxes are only triggered when an asset is realized, not while it is held by an investor. An investor can own shares that appreciate every year, but the investor does not incur a capital gains tax on the shares until they are sold.


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BREAKING DOWN 'Capital Gains Tax'

Most countries' tax laws provide for some form of capital gains taxes on investors' capital gains, although capital gains tax laws vary from country to country. In the U.S., individuals and corporations are subject to capital gains taxes on their annual net capital gains.

It is important to note that it is net capital gains that are subject to tax because if an investor sells two stocks during the year, one for a profit and an equal one for a loss, the amount of the capital loss incurred on the losing investment will counteract the capital gains from the winning investment.

To learn more about capital gains taxes, check out What unforeseen circumstances affect what I'll pay in capital gains taxes?

  1. Capital Loss

    The loss incurred when a capital asset (investment or real estate) ...
  2. Unrealized Gain

    A profit that exists on paper, resulting from any type of investment. ...
  3. Realized Gain

    A gain resulting from selling an asset at a price higher than ...
  4. Tax Gain/Loss Harvesting

    Selling securities at a loss to offset a capital gains tax liability. ...
  5. Capital Gain

    1. An increase in the value of a capital asset (investment or ...
  6. Capital Gains Distribution

    The payment of proceeds prompted by a fund manager's liquidation ...
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