How to Figure Long Term Capital Gain

by Matt McGew

A capital gain is the profit made on the sale of a capital asset, such as stocks, bonds, mutual funds and real estate. A long-term capital gain is when a profit is made by selling a capital asset that has been held for more than one year - a year or less is considered a short-term gain. The Internal Revenue Service requires you to pay tax on this long-term capital gain amount, although at a much lower rate than a short-term gain.

1. Determine the cost basis for the asset. This is the actual amount you paid for the asset, plus any expenses directly related to the acquisition of the asset. For example, if you acquired a stock and spent $25 on brokerage fees, you would add this cost to the price you paid for the stock. Assume you paid $50,000 for shares in a stock, including fees.

2. Determine the amount of money you sold the asset for. For example, assume that after two years you sold the stock from the previous step for $75,000.

3. Subtract the cost basis from the sale price of the asset. Continuing the same example, $75,000 - $50,000 = $25,000. This is your long-term capital gain.

4. Multiply the difference between the sales price and the cost basis of the profits by 15 percent, which is the long-term capital gains rate assessed by the IRS. Continuing the same example, $25,000 x .15 = $3,750. This figure represents the long-term capital gains tax you will have to pay on the sale of the stock.

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