Quick answer
A capital gain is the profit when an investment is sold for more than the price the investor paid for it [1]. Selling for less than your cost is a capital loss.
#How do you calculate a capital gain?
Subtract your basis from what you receive when you sell. The IRS explains that basis is generally what the asset cost you, and that a gain occurs when you sell for more than your adjusted basis [2]. Until you sell, any rise in price is an unrealized gain; it becomes realized when you sell.
Worked example
A simple realized gain
You buy 50 shares at $40 and sell them more than a year later at $58. Trading costs are ignored to keep it simple.
- Basis (50 × $40)
- $2,000
- Sale proceeds (50 × $58)
- $2,900
- Capital gain ($2,900 − $2,000)
- $900
- US federal tax if your long-term rate is 15% ($900 × 15%)
- $135
- US federal tax if your long-term rate is 0%
- $0
The gain is the same $900 either way; the tax depends on your holding period and your taxable income.
Hypothetical example using US federal rates for tax years beginning in 2025. State taxes and other rules may apply.
#What is the difference between short-term and long-term gains?
In the US, the line is one year. Assets held more than one year produce long-term gains or losses; one year or less produces short-term [2]. Net short-term gains are taxed as ordinary income at graduated rates [2]. Long-term gains usually get lower rates.
| Rate | Single filers: taxable income | Married filing jointly: taxable income |
|---|---|---|
| 0% | Up to $48,350 | Up to $96,700 |
| 15% | Above $48,350 up to $533,400 | Above $96,700 up to $600,050 |
| 20% | Above $533,400 | Above $600,050 |
Some gains have higher maximum rates: the IRS lists 28% for collectibles and the taxable part of qualified small business stock gains, and 25% for unrecaptured section 1250 gain on real property [2]. See capital gains tax basics for more.
#What happens with capital losses?
Losses first offset gains. If losses are bigger, the IRS lets you deduct the lesser of the excess loss or $3,000 a year ($1,500 if married filing separately) against other income, and carry the rest forward to later years [2]. A $5,000 net loss, for example, means a $3,000 deduction this year and $2,000 carried forward.
Related terms
Frequently asked questions
Do I owe tax on a gain if I have not sold?
Generally no. A rise in price is an unrealized gain until you sell. Other rules can apply to fund distributions, so check the tax forms you receive.
Is a capital gain the same as a dividend?
No. A dividend is a payment from a company's profits. A capital gain comes from selling an investment for more than you paid.
Sources
Grade A = primary source (regulator, government agency, official rulebook or the index provider's own documents). Numbers in brackets in the text point here.
- U.S. SEC — Investor.gov. Capital Gain (glossary) (2026). Accessed 2026-10-03.A
- Internal Revenue Service. Topic No. 409, Capital Gains and Losses (2026). Accessed 2026-10-03.A
This page is general education, not personal financial, tax or legal advice. Figures in worked examples are hypothetical and calculated before taxes and fees unless stated. Rules and limits change; check the linked primary sources for the current version. How we check every page.
