Capital Gains

See Also:
Tax Brackets
Marginal Tax Rate
Deferred Income Tax
Flat Tax Rates
Company Valuation

Capital Gains Definition

The capital gains definition is the proceeds from the sale of an asset. These gains can be realized from the sale of stocks, bonds, real estate, equipment, intangible assets, or other property. When the asset or property is sold, the capital gain is calculated by subtracting the asset’s book value from its selling price. If the selling price is higher than the book value, it is a capital gain.

It can also refer to an increase in the value of an asset. If the value of an asset increases while held, the increase in value above the asset’s purchase price is considered a capital gain. This gain is considered unrealized until the asset is sold.


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Capital Gains Equation

Capital Gains = Selling Price – Book Value

Losses

A capital loss is the loss incurred on the sale of an asset when the book value exceeds the selling price. Capital losses can occur from the sale of stocks, bonds, real estate, equipment, intangible assets, or other property. When the asset or property is sold, the capital loss is calculated by subtracting the asset’s book value from its selling price. If the book value is higher than the selling price, the company incurs a capital loss.

A capital loss can also refer to a decrease in the value of an asset. If the value of an asset decreases while held, the decrease in value below the asset’s purchase price is considered a capital loss. This loss is considered unrealized until the asset is sold.

Equation

Capital Loss = Selling Price – Book Value

Tax Rates

These gains are taxed according to a rate, called the capital gains tax rate, which may be different from the tax rate for regular income (depending on tax laws at the time). Long term capital gains are capital gains on assets held for more than one year. Short term capital gains are capital gains on assets held for less than one year.

Presently, in the U.S., long term capital gains tax rates are lower than regular income tax rates for individuals. Short term capital gains tax rates are the same as regular income tax rates for individuals. For companies, long term capital gains tax rates and short term capital gains tax rates are the same as regular income tax rates. In the U.S., the taxpayer may employ techniques to defer or reduce capital gains taxes.

capital gains

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