Capital Gains Treatment

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.

BREAKING DOWN '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. Capital Gains Tax

    A type of tax levied on capital gains incurred by individuals ...
  2. Long-Term Capital Gain Or Loss

    A gain or loss from a qualifying investment owned for longer ...
  3. Capital Gain

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

    The payment of proceeds prompted by a fund manager's liquidation ...
  5. Tax Loss Carryforward

    A tax loss carryforward takes place where a business or individual ...
  6. Return On Capital Gains

    The return that one gets from an increase in the value of a capital ...
Related Articles
  1. Managing Wealth

    Understanding the Capital Gains Tax

    A capital gains tax is imposed on the profits realized when an investor or corporation sells an asset for a higher price than its purchase price.
  2. Personal Finance

    Comparing Long-Term vs. Short-Term Capital Gain Tax Rates

    Learn about the difference between short- and long-term capital gains and how the duration of your investment can impact your tax liability.
  3. Personal Finance

    Capital Gains Tax 101

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

    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.
  5. Managing Wealth

    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 ...
  6. Personal Finance

    How Are Capital Gains And Dividends Taxed Differently?

    Individuals in the 25% or higher tax bracket pay a 20% tax on long-term capital gains.
  7. Personal Finance

    Here's How to Deduct Your Stock Losses From Your Tax Bill

    Learn the proper procedure for deducting stock investing losses, and get some tips on how to strategically take losses to lower your income tax bill.
  8. Financial Advisor

    Here's the Best Way to Skirt Capital Gains Taxes

    Taxpayers who know the rules for netting gains/losses can generate additional losses to net against the taxable gains in their portfolios. Here's how.
  9. Retirement

    Capital Gains Tax Cuts For Middle Income Investors

    Find out how TIPRA plans to slash taxes for those in the 10-15% tax bracket.
  10. ETFs & Mutual Funds

    7 Ways to Create a Tax-Efficient Portfolio

    Taxes may be a necessary evil, but that doesn't mean they can't be reduced. Here's a host of smart moves today's investors can make.
RELATED FAQS
  1. What is the difference between income tax and capital gains tax?

  2. How are capital gains calculated when using an online brokerage account?

    Are capital gains calculated annually or on every trade? How can selling a stock at a loss save me money on taxes? Also, ... Read Answer >>
  3. Are capital gains taxed differently in different countries?

    Learn about capital gains taxes in the Unites States as well as those of other countries, where these tax rates vary significantly. Read Answer >>
  4. Is there a difference between capital gains and dividend income?

    Selling something for a profits leads to capital gains. A payment made by a corporations to stockholders is a dividend. Both ... Read Answer >>
  5. Do I have to pay capital gains?

    I am a 72 year old retired widow. I want to sell my home and purchase a condo at the same value.  ... Read Answer >>
  6. If I pay capital gains tax, do I have to pay income tax on what is left?

    I sold some stocks and know that I have to pay capital gains tax at either the short term or long term rate (I had both). ... Read Answer >>
Hot Definitions
  1. Duration

    A measure of the sensitivity of the price (the value of principal) of a fixed-income investment to a change in interest rates. ...
  2. Dove

    An economic policy advisor who promotes monetary policies that involve the maintenance of low interest rates, believing that ...
  3. Cyclical Stock

    An equity security whose price is affected by ups and downs in the overall economy. Cyclical stocks typically relate to companies ...
  4. Front Running

    The unethical practice of a broker trading an equity based on information from the analyst department before his or her clients ...
  5. After-Hours Trading - AHT

    Trading after regular trading hours on the major exchanges. The increasing popularity of electronic communication networks ...
  6. Omnibus Account

    An account between two futures merchants (brokers). It involves the transaction of individual accounts which are combined ...
Trading Center