Next video:
Loading the player...

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 than you paid, you have a capital gain. Capital gain is only realized upon sale, even if your investment rises in value during the time you own it.

Most countries require capital gain to be reported on income tax returns, and it is taxed according to several factors, including your income tax bracket and how long you owned the asset before the selling it..

The IRS defines a short-term investment as one that was bought and sold within a year. Long-term investments are those owned for more than a year, prior to the sale. In general, you will pay the same tax rate on short-term capital gains as you would pay on your regular income, but lower capital gains tax on long-term investment sales. This encourages long-term investments that benefit the country’s economy and also means that a buy-and-hold investment strategy could have significant tax benefits.  

Related Articles
  1. Taxes

    Capital Gains Tax 101

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

    Tax Tips For the Individual Investor

    Keep more of your money in your pocket with these seven guidelines.
  4. Investing

    To Sell Or Not To Sell

    Learn some tips on how to exit a position to the best of your advantage.
  5. Investing

    7 Year-End Tax Planning Strategies

    Do you have a capital loss that could be booked and used to offset future tax liabilities? If so, it may be time to sell.
  6. Small Business

    Understanding Capital

    Capital has a variety of meanings, but it generally refers to financial resources.
  7. Financial Advisor

    The Basics of Income Tax on Mutual Funds

    Learn about the basics of income tax on mutual funds, including what types of income may be subject to the capital gains tax rate.
  8. Taxes

    Capital Losses and Tax

    Capital losses are never fun to incur, but they can reduce your taxable income. Knowing the rules for capital losses can help you maximize your deductions and make better choices about when to ...
  9. Investing

    Why Some Investors Have to Pay Taxes on a Loss

    Here's why some investors need to pay capital gains taxes even if they haven't sold any funds or made any portfolio changes—and how to combat it.
  10. Investing

    Keep Your Investing Tax-Efficient With These Tips

    It is prudent to take tax considerations into account when constructing taxable investment portfolios.
Hot Definitions
  1. Liquid Asset

    An asset that can be converted into cash quickly and with minimal impact to the price received. Liquid assets are generally ...
  2. Nostro Account

    A bank account held in a foreign country by a domestic bank, denominated in the currency of that country. Nostro accounts ...
  3. Retirement Planning

    Retirement planning is the process of determining retirement income goals and the actions and decisions necessary to achieve ...
  4. Drawdown

    The peak-to-trough decline during a specific record period of an investment, fund or commodity. A drawdown is usually quoted ...
  5. Inverse Transaction

    A transaction that can cancel out a forward contract that has the same value date.
  6. Redemption

    The return of an investor's principal in a fixed income security, such as a preferred stock or bond; or the sale of units ...
Trading Center