What is a 'Taxable Gain'

A taxable gain is a profit that results from the sale of any asset that is subject to taxation.

BREAKING DOWN 'Taxable Gain'

Taxable gains are the profits that an investor receives from selling an asset at a price higher than the cost basis of that asset. The U.S. Internal Revenue Service (IRS) considers an asset to be any property or investment not generally used in the conduct of an individual’s trade or business. A sale of an asset at a price higher than the individual’s basis will generally be subject to capital gains taxes. To calculate the taxable gain, an investor will take the difference between the sale price of the investment and the original purchase price, or cost basis. Cost basis refers to the original cost of the asset, adjusted for tax purposes to account for reinvested dividends or capital gains distributions.

Taxable Gain Rates: Short-Term vs Long-Term

For tax purposes, the IRS differentiates between short-term and long-term gains. A sale of assets held longer than one year will generally be subject to long-term capital gains taxes and that tax rate will be lower than the short-term tax rate. The IRS collects the ordinary income tax rate for short-term capital gains. This discrepancy between the short-term and long-term rates has led to a debate about the fairness of U.S. tax policies. Many commentators believe that a low long-term capital gains rate favors wealthy individuals, especially those who can structure their compensation as capital gains and dividends rather than regular salary. Others have argued that capital gains taxes are inherently unfair because they are a form of double taxation. A second argument against high capital gains rates holds that lower rates encourage overall investment while they foster economic growth and tax revenues.

Perhaps to counteract this inequity, capital gains taxes have been structured to take a lighter toll on lower-income investors. Long-term capital gains taxes were temporarily eliminated for low- and moderate-income investors after the Great Recession of 2008. The American Taxpayer Relief Act of 2012 made this change permanent with a tiered long-term capital gains structure that imposed no investment tax on taxpayers below the 25-percent income tax bracket.

Taxable Losses

Taxpayers can offset the tax burden of investment gains by claiming investment losses on their annual returns. The IRS allows individuals to deduct capital losses up to $3,000 over the amount of their capital gains. In some cases, investors can use capital losses beyond that limit in future years.



  1. Capital Gains Tax

    A capital gains tax is a tax for capital gains incurred by individuals ...
  2. Capital Gain

    Capital gain is an increase in a capital asset's value that is ...
  3. Gain

    A gain is an increase in the value of an asset or property.
  4. Long-Term Capital Gain or Loss

    A long-term capital gain or loss comes from a qualifying investment ...
  5. Tax Base

    A tax base is the amount of assets or income that can be taxed.
  6. Capital Gains Treatment

    The amount of time that a stock is owned before being sold determines ...
Related Articles
  1. 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.
  2. Taxes

    How to deduct stock losses from your tax bill

    Learn the proper procedure for deducting investment losses and get some tips on how to strategically structure them to lower your income tax bill.
  3. Taxes

    Investment Tax Basics For All Investors

    Asset placement and tax-loss harvesting can reduce the tax burden, however, Investors should still consult tax advisors for investment strategies.
  4. Financial Advisor

    How to Help Clients Harvest Tax Losses by Year End

    Here's how to help clients employ tax-loss harvesting to reduce their taxes before year end.
  5. Taxes

    Minimize Taxes With Asset Location

    Learn how to maximize your investment returns with this tax-minimization strategy.
  6. Taxes

    What's a Marginal Tax Rate?

    The marginal tax rate is based on a progressive tax system, where tax rates for an individual will increase as income rises. This method of taxation aims to fairly tax individuals based upon ...
  7. Investing

    How Mutual Funds Are Taxed in the U.S.

    A look at how mutual funds are taxed and how investors can be more tax efficient.
  8. Taxes

    Who Does The Current Tax Code Benefit?

    Are the non-workers benefiting from the current tax code in any way or is it the wealthy who are still getting the big breaks?
  9. Investing

    How Tax-Efficient Is Your Mutual Fund?

    Learn about factors that influence the tax-efficiency of your mutual fund, how income from your investment is taxed and what to look for when choosing a fund.
  10. Taxes

    Why America's Taxes Are Too Low

    The solution to America's economic woes may not be in lowering taxes further, but may, in fact, lie in increasing them.
  1. What are some examples of different taxable events?

    Learn what a taxable event is and how it affects investors and taxpayers with examples of taxable events that can result ... Read Answer >>
Trading Center