By Ziv Shay | Updated June 2026

Capital Gains

The profit you make when you sell an investment for more than you paid for it.

A capital gain is the difference between an asset’s sale price and its purchase price (cost basis). Gains on assets held longer than a year qualify for lower long-term capital gains tax rates (0%, 15%, or 20%), while assets held a year or less are taxed at higher ordinary income rates. Holding investments longer is rewarded by the tax code.

Formula

Example

Buy a stock for $5,000 and sell it three years later for $8,000, and you have a $3,000 long-term capital gain taxed at the favorable long-term rate rather than your ordinary income rate.

Related Terms

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