Capital gain
What is Capital gain?
A capital gain is the increase in value of a capital asset above its adjusted cost, measured either while held or when disposed of.
Portfolio reporting should identify currency, tax lot, adjusted basis, proceeds, fees, acquisition and disposal dates, and whether the figure is realized, unrealized, nominal, or inflation-adjusted. A platform can estimate tax consequences, but final treatment depends on investor residence, account, asset, elections, and law.
Scenario tools should show current sale, staged sale, continued holding, donation, and offset alternatives on the same risk and valuation assumptions, without presenting any route as personalized tax advice.
Economic and tax meanings
Economically, a gain is the difference between current or sale value and invested cost. Tax law determines whether and when that gain is recognized, its character, rate, and reporting. Assets, accounts, investors, and jurisdictions differ. A gain can also arise through exchange, redemption, merger, distribution, or other deemed disposal without a conventional cash sale.
Realized and unrealized
An unrealized gain exists while the asset remains held under the measurement convention. Realization generally occurs at a taxable disposal, but recognition can be deferred, exempted, or accelerated by specific rules. Performance reporting can include unrealized market movement even when tax reporting does not. The two records should reconcile without being treated as identical.
Calculating the amount
A simplified gain equals net proceeds minus adjusted basis. Commissions, fees, currency conversion, corporate actions, reinvested distributions, return of capital, gifts, inheritance, and elections can alter either side. Multiple purchases create tax lots, and the permitted identification method determines which basis is matched with a partial sale.
Holding period and character
Many systems distinguish short- and long-term holdings, while rates and definitions depend on local law. Some assets or activities receive special treatment, and hedges can affect holding periods. A tax estimate must use disposal date, acquisition date, investor status, instrument, and jurisdiction rather than applying one universal capital-gains rate.
Portfolio decisions
Embedded gains influence rebalancing, donation, withdrawal, transition, and asset-location choices. Tax can justify trading more gradually, but concentrated risk may outweigh deferral. Compare after-tax outcomes across realistic alternatives and horizons. Avoid refusing every beneficial sale merely to defer tax, since a later investment loss can exceed the tax saved.
Sources and further reading
- Capital Gains and Losses, Internal Revenue Service
- Basis of Assets, Internal Revenue Service