Taxes
Capital Gain
The profit realized when an investment is sold for more than its purchase price. Taxed differently depending on holding period.
Example
Buying a stock at $2,000 and selling it a year later for $2,600 produces a $600 capital gain, taxed at either short- or long-term rates depending on how long you held it.
Common Misconception
People sometimes think capital gains tax applies to the full sale price — it only applies to the profit (sale price minus cost basis), not the total proceeds.
Why It Matters
Holding an investment past the one-year mark before selling usually qualifies the gain for the lower long-term capital gains rate instead of ordinary income rates — a meaningful difference worth planning around.