Capital gains
Profit from selling an asset (stock, property, crypto) above what you paid for it. Taxed differently depending on how long you held it.
A capital gain is the profit you make when you sell an investment for more than you paid. Buy a stock at $50, sell at $80, your capital gain is $30 per share. Lose money on the sale and you have a capital loss, which can offset gains for tax purposes.
In the US, capital gains have two flavours based on holding period:
- Short-term (held one year or less): taxed at your ordinary income rate — the same as your paycheck.
- Long-term (held more than one year): taxed at preferential rates — typically 0%, 15%, or 20% depending on your income bracket.
This is why the one-year holding mark matters so much. Selling a profitable stock at day 364 vs day 366 can change the tax rate from 22-32% (ordinary) to 15% (long-term) — sometimes worth thousands.
Tax-loss harvesting is the practice of intentionally realising losses to offset gains, reducing the tax bill without changing your overall portfolio significantly. Useful at year-end if you have offsetting positions.
Gains inside a 401(k), Roth IRA, or other tax-advantaged account are not taxed when you sell within the account — only when you withdraw (and not at all for Roth withdrawals in retirement).
See also
- Roth IRA — A US retirement account funded with after-tax dollars. Contributions grow tax-free and withdrawals in retirement are tax-free.
- 401(k) — A US employer-sponsored retirement account. Contributions come out pre-tax, grow tax-deferred, and most employers offer a matching contribution.
- Marginal vs effective tax rate — Marginal rate is the rate on your next dollar of income; effective rate is the average rate across all your income.
- Yield — The income an investment produces, expressed as a percentage of its price. Different from total return — yield is just the income part.
Ask Cashowa about capital gains
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