Capital Gains Primer- Key Terms to Know and Understand

Feb 2, 2023 | Uncategorized


When discussing capital gains, there are a few key terms and phrases you should know in order to truly understand them. Below are eight key phrases usually used when discussing capital gains.

Short-Term Capital Gain A gain on an asset that is owned by a taxpayer for one year or less.

Long-Term Capital Gain A gain on an asset that is owned by a taxpayer for more than one year.

Wash Sale Occurs when a taxpayer sells a stock or security and purchases a substantially identical stock or security within a 30-day period before or after the sale. If it results in a gain, the gain must be realized. If it results in a loss, the loss is temporarily disallowed and the unrecognized loss is added to the basis of the replacement securities.

Capital Loss Deduction from Ordinary Income The amount of excess realized capital loss allowed to be deducted from ordinary income, limited to $3,000/year.

Capital Loss Carryover The amount of excess realized capital loss than be carried over to use in future years to offset capital gains or deducted from ordinary income.

Tax-Loss Harvesting The process of realizing capital losses to offset capital gains (usually occurs near the end of the year).

Gifting Stock Giving stock as a gift rather than cash. This allows the giver to avoid paying taxes on the gain. The annual gift tax exclusion is $17,000/recipient in 2023, while the estate tax exemption is $12.92 million in 2023.

Charitable Donation of Stock The process of gifting long-term capital gain property. It allows the taxpayer to avoid recognizing a gain on the sale of the asset while being able to deduct the entire fair market value of the property.