Investing taxes made simple: capital gains, wash sales, cost basis and tax-loss harvesting

This is a general overview of US concepts, not tax advice. Rates and rules change and depend on your situation; consult the IRS or a tax professional.

Capital gains

When you sell an investment for more than you paid, the profit is a capital gain. If you held it for a year or less, it is generally a short-term gain taxed like ordinary income. If you held it for more than a year, it is a long-term gain, usually taxed at lower rates. Gains inside retirement accounts are treated differently.

Cost basis

Cost basis is what you paid for an investment, including fees, adjusted for things like reinvested dividends and splits. Gain equals sale proceeds minus basis. Your broker normally tracks this and reports it, but transfers between brokers and older holdings are where errors creep in, so keep your own records.

Tax-loss harvesting

Selling an investment at a loss can offset gains from other sales, and in the US a limited amount of leftover loss can offset ordinary income, with the rest carried forward. It is a way to turn a loss into a tax benefit, not a reason to hold losing positions.

The wash-sale rule

If you sell something at a loss and buy the same or a “substantially identical” investment within 30 days before or after the sale, the loss is disallowed for now and instead added to the cost basis of the new purchase. It applies across your accounts, including IRAs. Plan around the window or use a clearly different investment.

Forms

• 1099-B: reports the sales you made, with proceeds and cost basis.
• 1099-DIV: dividends and distributions.
• 1099-INT: interest.

If something happens to you

What happens to investments after death depends on the account type, beneficiary designations and local law. Naming beneficiaries on every account and keeping a list of where accounts are held are simple steps that help families.

Taxes shouldn’t drive every decision, but ignoring them can quietly cost more than fees do.