Capital gains tax definition

Capital gains tax is a tax charged on the profit you make when you sell an asset for more than you paid for it. It can apply to shares, property, funds, bonds, and cryptocurrencies.

The gain is usually worked out as the selling price minus the cost basis, which is what you originally paid. The tax is triggered only when you realise the gain through a sale, so an asset you still hold does not create a charge. Rates depend on your country, the asset type, how long you held it, and your investor status.

Capital gains tax separates a realised gain from an unrealised one. A realised gain is locked in by a sale and can be taxed; an unrealised gain sits inside an asset you still own and is not. Some systems also split short-term and long-term gains at different rates, and some let capital losses offset capital gains.

Capital gains tax Example

You buy shares for USD 5,000 and later sell them for USD 7,000. Your capital gain is:

USD 7,000 - USD 5,000 = USD 2,000

The USD 2,000 gain may be subject to capital gains tax, depending on your tax jurisdiction and the rules that apply.