Capital gain

What is a capital gain

A capital gain is the profit an investor realizes by selling an investment asset at a price higher than the one at which it was purchased. This difference between the sale price and the purchase price is considered investment income and is usually subject to taxation under applicable law.

Types of capital gains

• Short-term capital gain – arises from the sale of an asset held for less than a year. Usually taxed at a higher rate.
• Long-term capital gain – comes from the sale of an asset held for more than a year. In many countries, it benefits from more favorable tax treatment.

How a capital gain arises

A capital gain can be realized by selling:

• Stocks and other securities.
• Bonds before maturity.
• Real estate held as an investment.
• Commodities, mutual funds, or other assets.

The difference between the sale and purchase price is calculated without including recurring income such as dividends or coupons.

Factors affecting a capital gain

• Holding period – determines whether the gain is short- or long-term.
• Market conditions – the rise or fall in the asset's market value.
• Fees and taxes – reduce the net gain the investor receives.
• Buying and selling strategy – the timing of a sale can significantly affect the size of the gain.

Capital gains on Stonkee

On Stonkee you can track capital gains across your entire portfolio. The AI evaluates which positions have the largest unrealized gain (unrealized gain/loss) and when a sale may be advantageous with respect to tax optimization and investment goals.

Summary

A capital gain is the basic form of investment return, depending directly on the investor's ability to buy an asset at a favorable price and sell it at a higher one. Proper timing and management of tax implications can significantly boost the net profit.