Capital gains tax

A capital asset is almost anything you own for personal use or to invest, such as a home or stocks. When you sell one, the difference between its cost and the sale price is a capital gain or a capital loss.

You have a capital gain if you sell for more than the asset cost you. You have a capital loss if you sell for less.

A gain is long-term if you held the asset for more than one year. It is short-term if you held it for one year or less.

Why it matters

How long you hold an investment can change the tax on its profit. Long-term gains often have a lower tax rate than short-term gains. Losses can lower your tax too, but losses on personal things, such as your home or car, do not count.

A worked example

You buy shares for $1,000 and sell them two years later for $1,500. Your capital gain is $500, and it is long-term. At a 15% rate, the tax on it is $75.