Capital Gains
A capital gain is the profit from selling an asset (stock, real estate, crypto, etc.) for more than you paid. In most countries, capital gains are taxed differently from ordinary income.
Short-term capital gains (assets held ≤ 1 year in the US) are taxed as ordinary income. Long-term capital gains (held > 1 year) are taxed at preferential rates: 0%, 15%, or 20% for most US taxpayers.
In the UK, capital gains above the annual exempt amount (£3,000 in 2025/26) are taxed at 10% or 18% (basic rate) / 20% or 24% (higher rate), depending on the asset type.
Canada taxes 50% of capital gains as ordinary income. Australia gives a 50% discount on gains from assets held over 12 months before taxing the remainder at the marginal rate.
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- Cost Basis
- Cost basis is the original value or purchase price of an asset for tax purposes. Capital gains tax is calculated on the difference between the sale price and the cost basis.
- Tax Bracket
- A tax bracket is a range of income taxed at a specific rate in a progressive tax system. Each bracket rate applies only to the income within that range, not to your entire income.
- Effective Tax Rate
- Your effective tax rate is your total tax paid divided by your total income, expressed as a percentage. It is always lower than your marginal rate in a progressive tax system.