Calculating Capital GainsIn a nutshell, the capital gain from the sale of an investment is calculated by subtracting your basis in the asset you sold, from the amount you realized in the sale. Your basis is your cost or the purchase price plus brokerage commissions and SEC fees. The amount realized is what you received from the sale, less brokerage commissions. Of course, when the cost basis is higher than the amount realized from the sale, the result is a capital loss. Traders and investors also receive ordinary income, which includes dividends and interest. Ordinary income is not considered a capital gain, therefore dividends and interest are not part of your capital gain calculation. It is also important to note that capital gains are taxed as net, meaning any losses in the tax year can offset the gains for the same period resulting in a net gain or loss. Capital gains and losses are typically reported on an IRS Form 1040, Schedule D for tax filing. However, not all investments are reported on a Schedule D. We'll discuss more in the topic Which Form to File?. Learn more... Benefits to Active Traders Please note: This information is provided only as a general guide and is not to be taken as official IRS instructions. Armen Computing Ltd. does not make investment recommendations nor provide financial, tax or legal advice. You are solely responsible for your investment and tax reporting decisions. Please consult your tax advisor or accountant to discuss your specific situation. |