Step 1: Determine Your Cost Basis
Your cost basis is typically what you paid for the investment, including any commissions or fees.
If you received shares through dividend reinvestment, inherited them, or received them as a gift, the cost basis rules differ.
Keep records of all purchase transactions—you'll need them at tax time.
Step 2: Calculate Your Holding Period
The holding period starts the day after you purchase and ends on the day you sell.
Holding for more than one year qualifies for long-term capital gains treatment, which typically has lower tax rates.
Short-term gains (held one year or less) are usually taxed at your ordinary income rate.
Step 3: Compute the Gain or Loss
Subtract your cost basis from your sale proceeds to find your gain (or loss).
Remember to subtract any selling costs from your proceeds.
A negative number means you have a loss, which can offset other gains.
