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Capital Gain/Loss

What is a Capital Gain/Loss?

A capital gain or loss occurs when an investment’s price increases or decreases from its initial purchase price. It’s a capital gain when the price has increased and a capital loss when it has decreased.

Capital gains and losses can be unrealized or realized. The gain or loss is unrealized before selling, and its value changes as the investment’s price fluctuates from its purchase price. Once the investment is sold, the unrealized capital gain or loss becomes realized.

Realized capital gains are considered taxable income in brokerage accounts. This means if you profit from selling a security, and it’s in a taxable account, you’ll owe taxes. The amount owed varies based on your tax bracket and how long you’ve held the security.

An upside of selling at a loss: Capital losses of comparable holding period and type can be used to offset capital gains and sometimes ordinary income, which can result in a lower tax bill.

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