Glossary
Capital gain: the profit when you sell for more than you paid
A rising share price is only a gain on paper until you sell. The capital gain is what the sale actually locks in, measured against what you paid.
A capital gain is the profit you make when you sell an asset, such as a stock, for more than your adjusted basis, which is generally what you paid including costs like commissions. Selling for less gives a capital loss.
Quick answer
A capital gain is the profit when you sell an asset for more than your adjusted basis; selling for less is a capital loss [1]. For stocks, basis is the purchase price plus costs such as commissions [2]. Holding more than one year generally makes the gain long-term [1].
Key points
On this page
How do you work out a capital gain on a stock?#
The IRS says almost everything you own for personal or investment purposes is a capital asset, including stocks and bonds [1]. You have a capital gain if you sell the asset for more than your adjusted basis, and a capital loss if you sell it for less [1].
Basis is generally the amount you paid [2]. For stocks, it is the purchase price plus additional costs such as commissions and recording or transfer fees [2]. So the fee you paid to buy raises your basis and lowers your gain.
What is the difference between short-term and long-term gains?#
The holding period decides it. Generally, if you hold the asset for more than one year before you sell, the gain or loss is long-term; one year or less makes it short-term [1]. Net short-term gains are taxed as ordinary income at graduated rates [1]. Long-term gains use separate capital gain rates. The IRS figures for single filers for 2025 are below.
2025 long-term capital gain rates for single filers, by taxable income (IRS):
| Taxable income, single, 2025 | Rate on most net capital gain |
|---|---|
| Up to $48,350 | 0% |
| Over $48,350 up to $533,400 | 15% |
| Above the 15% threshold | 20% on the part above it |
Figures from IRS Topic 409 for taxable years beginning in 2025 [1]. Other filing statuses use different thresholds; some gains are taxed differently. Not tax advice.
Dividends connect here too. Qualified dividends are taxed at the lower capital gain rates, while ordinary dividends are taxed as ordinary income [3]. And a company's dividend yield plus your capital gain or loss make up the stock's total return [4].
What happens when you have a capital loss?#
Losses offset gains first. If your capital losses exceed your capital gains, the IRS lets you claim the excess against other income up to $3,000 a year ($1,500 if married filing separately), and you can carry the rest forward to later years [1].
A loss is still a loss of money, so this is a partial cushion, not a reason to take risk. Funds can also hand you gains you did not choose: a mutual fund distributes its capital gains, minus capital losses, to investors at year end [5]. Shares you buy through a dividend reinvestment plan each have their own basis, so keep the statements. To check the size of a price move before tax, use the percent change calculator.
Frequently asked questions#
Do I owe tax on a gain if I have not sold?
Generally no. A capital gain arises when you sell or otherwise dispose of the asset for more than your adjusted basis [1]. Until then, a higher price is an unrealized gain that can still disappear.
Are commissions part of the calculation?
Yes. For stocks, the IRS includes commissions and recording or transfer fees in your basis [2], which lowers the gain.
Is a dividend a capital gain?
No. A dividend is income paid while you hold the stock. Qualified dividends are taxed at capital gain rates, but they are reported as dividends [3].
The bottom line#
A capital gain is the sale price minus your adjusted basis, and the holding period decides whether it is short-term or long-term. Keep every purchase record, including fees, and check current IRS figures before you file. Read the risk disclosure: a gain on paper can turn into a loss before you sell.
Sources
Education only. This page is not investment, tax or legal advice. Stocks can lose value. See our risk disclosure.
