Short-term gain vs. Long-term gain

Do you know the difference between short-term gains vs long-terms gains? A short-term gain means that you purchased and sold the stock within one year. A long-term gain means you bought the stock and held it for more than a year before selling it.

Let’s say that in March 2010 you bought 100 shares of XYZ stock for $10 a share ($1,000). (Note: The basis of your stock is $10 a share.) Then, in October 2010 you sold 50 shares for $12 a share ($600). This gain is considered a short-term gain because you held the stock for less than a year. Your short-term gain is $100 (50 shares sold at $12 each = $600 minus 50 shares bought at $10 each $500 = $100 (600-500)).

Continuing on, in April 2012, you decided to sell the remaining shares for $15 a share. You now have a long-term gain on these 50 shares of stock because you held them for more than a year.  When you report your gain, you will take your basis for the stock and subtract it from the sale price of the stock to determine your long-term gain. Therefore, you sold 50 shares for $15 for a total sales price of  $750. Your basis in the stock was $500 (50 shares at $10 a share). Your long-term gain is $250 ($750-500).

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