Capital Gains & Basis

The tax result from selling an investment starts long before the sale.

It starts with what you own, what you paid for it, how you acquired it, how long you held it, and which shares you actually sold.

Get one of those wrong and the gain can be wrong too.

This section of the PRISM Investment Tax Atlas covers the mechanics underneath investment gains and losses: holding periods, basis, share identification, inherited and gifted property, corporate actions, capital losses, wash sales, harvesting strategies, worthless securities, and estimated tax after a major gain.

Start with the capital-gain equation

At its simplest:

amount realized − adjusted basis = gain or loss

But most difficult capital-gain questions come from determining the inputs rather than doing the subtraction.

You may need to establish:

which tax lot was sold;
whether basis reported by a broker is complete;
whether a gift or inheritance changed the basis rules;
whether a split, merger, spin-off, or return of capital changed adjusted basis;
whether the holding period makes the result short-term or long-term;
whether a loss is currently deductible;
whether a wash sale postpones that loss;
whether existing capital losses change the value of realizing another gain or loss.

That is why basis, character, timing, and reporting belong in the same system.

Explore Capital Gains & Basis

Short-Term vs. Long-Term Capital Gains: What Changes After One Year?
Start with the holding period. Learn when an investment becomes long-term for federal tax purposes and which dates and transaction facts can change the result.
What Are the Capital Gains Tax Rates?
Understand the federal long-term capital-gain brackets, income stacking, capital losses, and why one investor can have gains taxed at more than one rate.
What If My Cost Basis Is Missing or Wrong?
A blank or incorrect Form 1099-B does not automatically make basis zero. Learn how basis can be reconstructed and which records can support the calculation.
Selling Shares Bought at Different Prices: Specific Identification vs. FIFO
When identical shares were acquired at different prices, the tax result depends on which lot was sold. Understand specific identification, FIFO, timing, and documentation.
Inherited Stock: Cost Basis and Holding Period
Learn how inherited-property basis and holding periods work, including when estate valuation, consistent-basis rules, and Form 8971 can matter.
Gifted Stock: How Basis Works When You Receive Shares as a Gift
Gifted property can carry more than one potential basis. Understand carryover basis, the dual-basis rule, holding periods, and the records the recipient needs.
Stock Splits, Mergers, Spin-Offs, and Return of Capital: How Basis Changes
Corporate actions can change basis without looking like an ordinary purchase or sale. Learn when basis is reallocated, reduced, or carried into replacement property.
Capital Losses and Carryovers: What Happens When Losses Exceed Gains?
Understand how capital losses offset gains, when the annual deduction limitation applies, and how unused losses carry forward.
Wash Sales: The 30-Day Rule and “Substantially Identical” Investments
A realized investment loss is not always immediately deductible. Learn how replacement purchases, basis adjustments, IRAs, spouses, related parties, and similar investments can affect the result.
Tax-Loss Harvesting: What the Tax Rules Actually Allow
Tax-loss harvesting is a transaction strategy built on the capital-loss rules. Understand what the loss can offset and why the replacement investment matters.
Tax-Gain Harvesting: When Realizing a Gain Can Change the Tax Result
Sometimes realizing a gain intentionally can use available long-term capital-gain rate capacity and reset investment basis. Learn what has to be modeled before acting.
Worthless or Abandoned Securities: When Can You Claim a Tax Loss?
An investment that has collapsed in value is not necessarily tax-worthless. Learn when worthlessness or abandonment can produce a loss and why the correct tax year matters.
I Sold an Investment for a Large Gain. Do I Need to Pay Estimated Tax Now?
A profitable sale can create a payment obligation before the annual return is due. Understand safe harbors, withholding, payment timing, and annualization.

A useful order for a sale

When an investment is sold, work through the questions in sequence:

What property was sold? → What is its adjusted basis? → Which lot was sold? → How long was it held? → What is the gain or loss? → Can the loss be used now? → How is the transaction reported? → Is an estimated payment required?

Different guides in this section solve different parts of that chain.

Federal mechanics first. State treatment second.

This hub focuses primarily on the federal mechanics of investment gains, losses, basis, and timing.

State treatment can diverge.

Once the federal transaction is understood, use State & Multi-State Investment Tax for residency, sourcing, state capital-gain treatment, credits, moves between states, and other state overlays.

The PRISM principle

The sale price is usually the easy number.

The harder question is whether the tax system has the right history of the investment.

Establish basis. Establish the shares sold. Establish the holding period. Then calculate the gain or loss.