Determining capital gains
I am planning on selling some stocks. I understand that I will have to pay capital gains tax, but how is capital gains determined? How can I tell what is gains and what is invested capital?
Answers | 1
Here is a simple way to do this. After you sell your stocks you will know the selling price. Your Capital Gains is equal to the difference between the Selling Price and the Cost Basis of the underlying stocks. Cost Basis is reported by the custodian on your brokerage statement. It is simply the cost of acquisition of the underlying shares. If you have held the stocks for over a year, it will be classified as a Long Term Capital Gain and anything less than a year will be Short Term Capital Gain. Long and Short Term Capital Gains are taxed at different rates.
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