Trying to understand capital gains tax?

So I’ll give you guys an example of something I’m trying to understand. Let’s say I’m in Virginia and I buy a stock of something at $100. A year later its value is at $150 and I decide to sell. What would I actually get back after taxes? Is it just the +$50 that gained that are taxed or do they take from the entire $150?

Side question is what would be different if I sold it under one year?


8 Answers

  • 7 months ago
    Favorite Answer

    Only PROFITS are taxed. And if you bought stock at $100 and sold at $150, you did not have a profit of $50. You had a GROSS profit of $50. What is subject to tax is gross profit minus the expenses of creating the profit - broker's commissions, postage if the transaction was through the mail, etc.

    Taking a profit in under a year, the profit is taxed as ordinary income. Same as your wages.

    Taking a profit after a year or more is a long term capital gain, and the rate you pay depends on your other income. For many in the middle class, the long term capital gains rate is 0%.

    • Login to reply the answers
  • Judy
    Lv 7
    6 months ago

    just the gain is taxed

    • Login to reply the answers
  • 7 months ago

    For small gains the tax is zero. Larger ones get favorable treatment on the profit.

    • STEVEN F
      Lv 7
      6 months agoReport

      The size of the gain DOES NOT effect the tax rate. The person's OVERALL tax bracket determines the tax rate on capital gains.

    • Login to reply the answers
  • Amy
    Lv 7
    7 months ago

    Only the $50 gain is taxed.

    If you hold the stock less than a year, that gain is just part of your income and gets added together with your wages etc. when figuring income tax. If you hold more than a year, it is taxed at a lower rate (possibly 0%).

    • Login to reply the answers
  • How do you think about the answers? You can sign in to vote the answer.
  • 7 months ago

    You get it all and pay the taxes later. The $50 is taxed (only the GAIN). 15% for long term because you held it over a year. So you end up with about $143.

    Under one year the $50 is taxed as ordinary income, and that rate depend on all your other income.

    • Login to reply the answers
  • 7 months ago

    Capital gains are not that easy to define.

    It's NOT the profit you make. In your example, getting $150 for the spending of $100 can be considered a profit of $50, and as such would be taxed as income. It doesn't really matter about the time difference when you bought and when you sold.

    Essentially, if you buy to on-sell, you make a profit and that's what gets taxed.

    Stocks and shares have a tendency to be traded on this simple approach, so the tax you pay is based on your total income (less legitimate expenditures).So, selling within the same year is just basic tax on your income.

    Capital gains usually come over very long periods of time. Because the taxing would be over a long period (a number of tax years), it's not as simple as taking the difference between value at time A and value at time B. You have to assign the values over the financial years involved. And then there is the matter of expenditures for the item (including depreciation).

    If you buy a house for example (primarily for your own use), do maintenance and renovations that make it worth more, all those expenses need to be taken into account, as well as the "windfall" amount of house prices going up. And what about situations like starting a company (Microsoft, for example): the initial stocks were about $1 per share. And there were maybe 1000 such shares. Now there's billions of shares, and they are worth, what? about $140 a share?

    Add in the idea that a dollar in 2000 was worth more (in buying power) than a dollar in 2019....

    This forum isn't the place to give a full view of just how complex capital gains taxes might be.

    • Login to reply the answers
  • Anonymous
    7 months ago

    You get it all back at the time of sale. (less a very tiny amount of SEC fees). When you do your taxes, you include and are taxed on the amount of capital gains. (id held over a year)

    If sold before a year, you owe taxes at tax time at the often less favorable rate.(as it would be a short term gain)

    The broker does not confiscate any amount for taxes unless you have backup withholding as a result of not doing your taxes for a long time.

    You owe taxes by April 15th of the following year.

    • Login to reply the answers
  • danxp2
    Lv 6
    7 months ago

    The hint is in the word "gain."

    They tax your gains. Your gain is the 50 dollars. Capital gains only taxes your gains.

    If you don't hold the stock or other investment for at least 1 year then any gain is consider regular income and combined with wages, interest, etc and taxed at your regular income tax rate. This regular tax rate is generally higher then the capital gains rate.

    • Login to reply the answers
Still have questions? Get your answers by asking now.