Capital Gains Treatment

AAA

DEFINITION of 'Capital Gains Treatment'

The specific taxes assessed on investment capital gains as determined by the U.S. Tax Code. When a stock is sold for a profit, the portion of the proceeds over and above the purchase value (or cost basis) is known as capital gains. Capital gains tax is broken down into two categories: short-term capital gains and long-term capital gains. Stocks held longer than one year are considered long term for the treatment of any capital gains, and are taxed a maximum of 15% depending on the investor's tax bracket. Stocks held less than one year are subject to short-term capital gains at a maximum rate of 35% depending again on the investor's tax bracket.

INVESTOPEDIA EXPLAINS 'Capital Gains Treatment'

The huge difference between the short-term and long-term rates makes it clear that paying close attention to the tax consequences of investing in stocks is a critical skill to develop. As an investor's portfolio grows, he or she should increasingly keep track of capital gains, including making adjustments near the end of the calendar year to reduce capital gains taxes as much as possible. An accountant or investment professional can assist in these efforts.

RELATED TERMS
  1. Pretax Rate Of Return

    The rate of return on an investment that does not take the taxes ...
  2. Available-For-Sale Security

    A debt or equity security that is purchased with the intent of ...
  3. Gifted Stock

    Stocks given from one person or entity to another person or entity. ...
  4. Capital Gain

    1. An increase in the value of a capital asset (investment or ...
  5. Forward Averaging

    Treating lump-sum retirement-plan distributions as if they occurred ...
  6. Variable Death Benefit

    The amount paid to a decedent's beneficiary that is dependent ...
Related Articles
  1. Taxes

    Avoid Tricky Tax Issues On Municipal Bonds

    Learn the rules every investor should know before buying into this "tax-free" investment.
  2. Taxes

    Using Tax Lots: A Way To Minimize Taxes

    The method of identifying cost basis can help you to get the most out of reduced tax rates.
  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. Capital gain refers to the increase in value of a capital asset or an investment security upon sale.
    Investing

    Understanding Capital Gains

    Capital gain refers to the increase in value of a capital asset or an investment security upon sale. In other words, if you buy company stock, real estate or fine art and then sell it for more ...
  5. Taxes

    Why should I keep records on my tax-exempt bond transactions?

    Keep your purchase records on all investments, including tax-exempt bonds. Though the interest is tax-free, you may owe taxes if you sell your bond for a gain.
  6. Taxes

    Can I own Master Limited Partnerships (MLP) on my Roth IRA?

    Learn how to invest in master limited partnerships, or MLPs, in your Roth IRA for access to high yields, but be careful to consider possible UBTI taxes.
  7. Taxes

    Are stock dividends and stock splits taxed?

    Understand different tax implications for dividend payments and stock splits; main factors include the type of account and the tax situation.
  8. Retirement

    Rolling Over Company Stock: A Decision To Think Twice About

    It may be more beneficial for you to pay tax now than deferring it to an IRA. We show you how and why.
  9. Investing

    Can I donate stock to charity?

    Giving stock, instead of cash, as a donation can greatly benefit both parties. You will find that most charities, hospitals, schools and other nonprofit organizations will accept stock as a gift ...
  10. Retirement

    Discover Master Limited Partnerships

    These unique investments provide significant tax advantages.

You May Also Like

Hot Definitions
  1. Commodity

    1. A basic good used in commerce that is interchangeable with other commodities of the same type. Commodities are most often ...
  2. Deferred Revenue

    Advance payments or unearned revenue, recorded on the recipient's balance sheet as a liability, until the services have been ...
  3. Multinational Corporation - MNC

    A corporation that has its facilities and other assets in at least one country other than its home country. Such companies ...
  4. SWOT Analysis

    A tool that identifies the strengths, weaknesses, opportunities and threats of an organization. Specifically, SWOT is a basic, ...
  5. Simple Interest

    A quick method of calculating the interest charge on a loan. Simple interest is determined by multiplying the interest rate ...
  6. Special Administrative Region - SAR

    Unique geographical areas with a high degree of autonomy set up by the People's Republic of China. The Special Administrative ...
Trading Center