The profit you make when you sell an investment for more than you paid for it. If you bought something for $50 and sold it for $80, your capital gain is $30. You pay taxes on that profit, but the rate depends on how long you held it. Hold it for over a year and you get a lower tax rate, which is one of many reasons long-term investing tends to make more sense than constantly buying and selling.
Walk through the numbers
You buy shares for $2,000 and sell them three years later for $3,000. Your capital gain is $1,000. Because you held for more than a year, it is taxed at the lower long-term rate of 0%, 15% or 20%.
Holding for more than a year usually means a lower tax bill, which is one more reason long-term investing tends to beat frequent trading.
Related terms
For education only and not personalized investment advice. Examples are hypothetical illustrations, not a prediction or a promise of results. All investing involves risk, including the possible loss of principal.