Definition: A capital gain is the difference between what you paid for an investment and what received when you sold that investment.
Investments include mutual funds, bonds, stocks, options, precious metals, real estate, and collectibles. If you sold an investment for more than what you paid for it, then you have a gain. If you sold an investment for less than what you paid for it, then you have a capital loss. Your capital gains and losses are reported on IRS Form 1040 Schedule D (PDF), with the result carried to Form 1040.
Capital gains are calculated as follows:
- Selling price
- Minus Selling fees & commissions
- Minus Buying fees & commissions
- Minus Purchase price
- = Profit (or Loss if negative)
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