Capital gains

A capital gain is the profit from selling an asset for more than you paid: the sale price minus your cost basis. In many countries it is taxed.

How it works

The formula is simple: sale price minus cost basis, which usually includes the purchase price and fees. If the result is positive it is a capital gain, if negative a capital loss. Until you sell, the profit is only on paper (unrealised) and usually not taxed.

In many countries the rate depends on how long you held the asset: gains on something held longer than a set period may be taxed more lightly than short-term trades. Some places have a tax-free allowance. Some tax crypto as ordinary income rather than capital gains. The specific rules depend on the country.

In many systems losses from other trades can be subtracted from gains, but the order and limits differ. That is why you need not just the profit on your good trades but the total for the year.

Example with numbers

You bought 0.1 BTC at $40,000 for $4,000 and paid a $10 fee. You sold at $60,000 for $6,000 with a $12 fee. Capital gain: $6,000 − $12 − ($4,000 + $10) = $1,978.

Common mistake

A mistake is working out taxable profit from the coin's price rise while forgetting fees and the real purchase price. Or the opposite: looking only at the portfolio's total for the year, when tax is often calculated per sale. Keep the price and fee of every buy and sell so your gain is calculated correctly and not overstated.

Questions and answers

What are capital gains in simple terms?

It is how much you made by selling an asset: you sold for more than you paid, and the difference is your gain.

Are unrealised gains taxed?

Usually not: tax arises when you sell or swap. Some countries and situations have exceptions.

Can losses offset capital gains?

In many countries yes, within the rules: losses reduce taxable gains for the year and sometimes carry forward to later years. The details depend on the country.

Capital gains

How it works

Questions and answers

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