Capital Gains Tax Calculator
Understanding Capital Gains
A capital gain occurs when you sell an asset for more than you originally paid for it. The difference between the selling price and your cost basis (purchase price plus any capital expenses) is your capital gain. This gain is subject to capital gains tax.
How Capital Gains Are Calculated
The calculation is straightforward:
- Cost Basis: This is the original price you paid for the asset, plus any costs associated with acquiring it (like closing costs for real estate) and any significant capital improvements made to the asset over time. For simplicity in this calculator, we combine the initial purchase price and documented capital expenses.
- Selling Price: This is the amount you receive from selling the asset. It's important to subtract selling costs (like real estate agent commissions or trading fees) from this amount to arrive at your net selling price. For this calculator, the 'Selling Price' input is considered the net proceeds after selling costs.
- Capital Gain: The capital gain is calculated as:
Capital Gain = Selling Price - (Purchase Price + Capital Expenses) - Capital Gains Tax: This is the tax you owe on your capital gain. It's calculated by applying your applicable tax rate to the capital gain:
Capital Gains Tax = Capital Gain * (Tax Rate / 100)
Example Calculation
Let's say you purchased a property for $150,000 (Purchase Price). Over the years, you invested $20,000 in capital improvements (Capital Expenses). You recently sold the property for $300,000 (Selling Price). Your applicable capital gains tax rate is 20% (Tax Rate).
- Adjusted Cost Basis: $150,000 (Purchase Price) + $20,000 (Capital Expenses) = $170,000
- Total Capital Gain: $300,000 (Selling Price) – $170,000 (Adjusted Cost Basis) = $130,000
- Capital Gains Tax Owed: $130,000 * (20 / 100) = $26,000
In this example, you would owe $26,000 in capital gains tax.
Types of Capital Gains
Capital gains are generally categorized into two types based on how long you owned the asset:
- Short-Term Capital Gains: Apply to assets held for one year or less. These are typically taxed at your ordinary income tax rate.
- Long-Term Capital Gains: Apply to assets held for more than one year. These are usually taxed at lower rates (0%, 15%, or 20% federally, depending on your income bracket). This calculator assumes a single tax rate applicable to your gain, which could represent your long-term rate or an estimated short-term rate.
Disclaimer: This calculator is for educational purposes only and does not constitute financial or tax advice. Tax laws are complex and subject to change. Consult with a qualified tax professional or financial advisor for personalized advice regarding your specific situation.