Chapter 5: Capital Gains and Losses

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A capital gain is simply the difference in what you sold something (eg shares) for and what you bought it for (also called the "cost basis" for that asset).

Example: You buy 5 shares of a stock for $250 (including commissions) and after 2 years you sell them for $400. Your cost basis is $250 and your capital gains is $150 (i.e. 400 minus 250)

Short-Term Capital Gains

  • when an asset is held for less than one year
  • taxed at normal income tax rates

Long-Term Capital Gains

  • when an asset is held for more than one year
  • taxed at the same rates as qualified dividend income
    • if you can try to hold your investment for at least a year before selling :)

Note: you only have to pay taxes when you sell an asset, it doesn't matter how much the value fluctuates between when you bought and sold it

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  • 15 days ago by vince