Capital Gains or Losses

Table of Contents

What is a capital gain or capital loss?
How do you calculate capital gains or losses?
Examples of capital gain and loss
Short-term and long-term capital gains and losses
What are unrealised gains and losses?
Frequently Asked Questions

What is a capital gain or capital loss?

A capital gain or loss is the profit you make or loss you incur after selling a security. If the selling price of your security is more than your cost price, your make a capital gain. If your selling price is lower than your cost price, you incur a capital loss.

How do you calculate capital gains or losses?

Capital gain or loss = (Selling price – Cost price) x Number of units sold

If the result is positive, that means a gain. If the result is negative, it signifies a loss.

Examples of capital gain and loss

Suppose an investor buys 100 shares at US$20 each. His total cost of investment is US$2,000.

If he sells his shares at US$22 per share, he makes a capital gain of US$200.

Capital gain = (Selling price – Cost price) x 100 = (US$22 – US$20) x 100 = US$200

If he sells each share at US$17, he bears a capital loss of US$300.

Capital loss = (US$17 – US$20) x 100 = (-US$3) x 100 = -US$300

Short-term and long-term capital gains and losses

In the US and several other countries, capital gains are subject to taxation, which varies based on whether they are long-term or short-term. Long-term capital gains come from assets held for over a year, while short-term capital gains are from assets sold within one year or less. Certain countries, such as Singapore, do not impose a capital gains tax.

What are unrealised gains and losses?

Unrealised gains occur when the value of your investment goes up but you haven’t sold it. Similarly, if the value of your investment falls and you haven’t sold it, your loss is an unrealised loss.

Unrealised gains and losses are also known as paper gains and losses since they become actual gains and losses only when you sell them.

Frequently Asked Questions

What is a net capital gain?

When your total capital gains for the year outweigh your total capital losses, you will end up with a net capital gain for the year. Similarly, when your total capital losses for the year outweigh your total capital gains, you will end up with a net capital loss for the year.

What capital gains are taxable?

Capital assets taxable in the US include homes, cars, property, collectibles and investments like stocks and bonds.

Is dividend income considered a capital gain?

It varies from country to country.

Most stock dividends in the US qualify to be taxed as capital gains. The tax rate for dividend income depends on whether the dividends are ordinary or qualified. A qualified dividend is taxed at the capital gains tax rate. Ordinary dividends are taxed at standard federal income tax rates.

In Singapore, dividends paid by resident companies are not taxed. Foreign dividends received by individual residents in Singapore are also non-taxable. If an individual resident in Singapore receives foreign-sourced dividends through a partnership in Singapore, these dividends may be exempted from Singapore tax if certain conditions are met.

How do I minimise capital gains tax?

Consider investing for the long term. Holding an asset for over a year qualifies you for the lower long-term capital gains tax rate, which is typically much lower than the short-term rate in the US. Additionally, you can offset gains with capital losses by selling underperforming assets that no longer align with your investment goals before the financial year ends. This strategy allows you to use the capital loss to offset gains from other assets, helping you manage tax liabilities and freeing up funds for better investment opportunities.

What is the income from capital gain or loss?

Capital gains refer to the profits earned from selling investments like stocks, bonds, or real estate. These gains are taxed at a lower rate than ordinary income, offering investors a tax advantage compared to wage earners. Additionally, capital losses may be used to reduce one’s overall tax liability in some cases.