Capital Gains Tax

AAA

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.

INVESTOPEDIA EXPLAINS '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?

VIDEO

Loading the player...
RELATED TERMS
  1. Capital Gains Yield

    The price appreciation component of a security's (such as a common ...
  2. Capital Asset

    A type of asset that is not easily sold in the regular course ...
  3. Locked In

    A situation where an investor is unwilling or unable to exit ...
  4. Phantom Gain

    A situation that arises when a gain on an investment is offset ...
  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 ...
RELATED FAQS
  1. How is taxation treated for both the parent and subsidiary company during a spinoff?

    A common separation strategy used by corporations includes divestiture activities that segment a portion of a company's operations, ... Read Full Answer >>
  2. How much tax does Warren Buffett think billionaires should pay?

    Warren Buffett's current opinion on taxation is apparently reflected in "the Buffett Rule," part of a tax plan put forth ... Read Full Answer >>
  3. What assets are taxable and what assets are not taxable?

    Most types of income are taxable by the Internal Revenue Service (IRS). In fact, all income is taxable unless it is specifically ... Read Full Answer >>
  4. Is it true that you can sell your home and not pay capital gains tax?

    It is true in most cases. When you sell your home, the capital gains on the sale are exempt from capital gains tax. Based ... Read Full Answer >>
  5. How do I figure out my cost basis on a stock investment?

    The cost basis of any investment is the original value of an asset adjusted for stock splits, dividends and capital distributions. ... Read Full Answer >>
Related Articles
  1. Retirement

    To Sell Or Not To Sell

    Learn some tips on how to exit a position to the best of your advantage.
  2. Taxes

    What You Need To Know About Capital Gains And Taxes

    Find out how your profits are taxed and what to consider when making investment decisions.
  3. Taxes

    Capital Gains Tax 101

    Find out how taxes are applied to your investment returns and how you can reduce your tax burden.
  4. Taxes

    Vacation Home Or Income-Producing Investment?

    There is an alternative to letting your cottage sit empty all year, but turning a profit won't be easy.
  5. Retirement

    Don't Lose Your Shirt On Mutual Fund Sales

    Mutual funds aren't guaranteed profit-makers, but with the right calculations and timing, you can avoid major losses.
  6. Retirement

    Get A Step Up With Credit Shelter Trusts

    Don't let unexpected taxes eat away at your inheritance or burden your heirs.
  7. Taxes

    Capital Gains Tax Cuts For Middle Income Investors

    Find out how TIPRA plans to slash taxes for those in the 10-15% tax bracket.
  8. Fundamental Analysis

    The Future of Big Pharma Stocks

    A look at the future health of big pharma stocks.
  9. Savings

    5 Secrets You Didn't Know About A 529 Plan

    Start saving for college as soon as possible after your kids are born – and keep these details in mind.
  10. Professionals

    Is it Safe to Invest in MLPs Again?

    The best bet right now for investors seeking to play a rebound in the price of oil may very well be ETFs that invest in energy MLPs.

You May Also Like

Hot Definitions
  1. Asset Class

    A group of securities that exhibit similar characteristics, behave similarly in the marketplace, and are subject to the same ...
  2. Fiat Money

    Currency that a government has declared to be legal tender, but is not backed by a physical commodity. The value of fiat ...
  3. Interest Rate Risk

    The risk that an investment's value will change due to a change in the absolute level of interest rates, in the spread between ...
  4. Income Effect

    In the context of economic theory, the income effect is the change in an individual's or economy's income and how that change ...
  5. Price-To-Sales Ratio - PSR

    A valuation ratio that compares a company’s stock price to its revenues. The price-to-sales ratio is an indicator of the ...
  6. Hurdle Rate

    The minimum rate of return on a project or investment required by a manager or investor. In order to compensate for risk, ...
Trading Center