What are Capital Gains?
A capital gain is an increase in the value of a capital asset that you own. The IRS defines a capital asset as almost everything you use for personal purposes or investment, including stocks and bonds, your home, personal property and collectibles. Capital gain is calculated as the sale price of the asset minus its basis. Basis is generally the price you paid for the asset and includes transaction costs. Capital gains are taxed at different rates depending on how long the asset is held. A long-term capital gain occurs if you hold the stock or bond for more than one year. A short-term capital gain occurs if you hold the security for one year or less. Long-term capital gains are taxed at a lower tax rate while short-term gains are taxed as ordinary income.