Capital Gains or Losses

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 or some other countries, capital gains are subject to taxes, even depends on long-term or short-term.

Long-term capital gains are derived from assets that have been held for more than one year.

Short-term capital gains are gains from the sale of assets owned for one year or less.

Some countries like Singapore do not have capital gain 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

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.

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

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.

You can try to invest for the long term. Whenever possible, hold an asset for a year or longer so that you qualify for the long-term capital gains tax rate, since this is significantly lower than the short-term capital gains rate for most assets in the US.

You can also use a capital loss to offset gains. Selling poorly performing assets that no longer suit your investment objectives before the end of a financial year is one option. By selling a poorly performing asset and incurring a capital loss, you may use it to offset a realised capital gain from another asset in the same financial year. This allows you to manage your tax liabilities as well as free up your money for more suitable investment opportunities.

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