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 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. Capital Gain

    1. An increase in the value of a capital asset (investment or ...
  5. Tax Gain/Loss Harvesting

    Selling securities at a loss to offset a capital gains tax liability. ...
  6. Capital Gains Distribution

    The payment of proceeds prompted by a fund manager's liquidation ...
RELATED FAQS
  1. What are the most common ETFs that track the automotive sector?

    The most frequently traded exchange-traded fund (ETF), The First Trust Nasdaq Global Auto (CARZ), is an index of automotive ... Read Full Answer >>
  2. What is an adjusted cost basis and how is it calculated?

    The cost basis of an investment or asset is an important consideration in tax planning for individual investors, business ... Read Full Answer >>
  3. 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 >>
  4. 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 >>
  5. 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 >>
  6. 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 >>
  7. 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. Economics

    What Is Supply?

    Supply is the amount of goods a producer is willing to produce at a given price, and is one of the most basic concepts in economics.
  9. Economics

    What is a Management Buyout?

    A management buyout, or MBO, is a transaction where a company's management team purchases the assets and operations of the business they manage.
  10. Economics

    Explaining the EBITDA Margin

    EBITDA margin can provide an investor with a cleaner view of a company's core profitability.

You May Also Like

Hot Definitions
  1. Expected Return

    The amount one would anticipate receiving on an investment that has various known or expected rates of return. For example, ...
  2. Carrying Value

    An accounting measure of value, where the value of an asset or a company is based on the figures in the company's balance ...
  3. Capital Account

    A national account that shows the net change in asset ownership for a nation. The capital account is the net result of public ...
  4. Brand Equity

    The value premium that a company realizes from a product with a recognizable name as compared to its generic equivalent. ...
  5. Adverse Selection

    1. The tendency of those in dangerous jobs or high risk lifestyles to get life insurance. 2. A situation where sellers have ...
Trading Center