Investing

In Graphics: What Are Capital Gains?

Let’s face it: no one invests just so they get an adrenaline rush from the markets’ wild swings. We do it so we can watch our hard-earned money grow, preferably at a higher rate than we could get in a super-safe, government insured bank account. And a large portion of that portfolio growth comes from asset appreciation. Be it stocks, bonds, real estate or even collectible cars, stamps or gemstones, capital gains are many portfolios’ muscle milk. (Dividends are another source of income, for those who invest in dividend-paying stocks.)

And as with most anything else in the investing world, cap gains are hardly straightforward. There are long-term capital gains — and there are short-term capital gains. And then, of course, there are capital gains taxes. This is when the true fun begins: ranging anywhere from 0% to 35%, come April 15 each year Uncle Sam claims his share of your wins. It works both ways, of course: should your assets depreciate, you can sell at a capital loss and, in some cases, offset those taxable gains. We explain capital gains and capital gain taxes in this infographic.