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How to calculate capital gains from U.S. stocks
5 minutes read
11 July 2025

Getting into the U.S. stock market can feel overwhelming at first. But understanding how capital gains work is crucial for your investment success. Let's break down everything you need to know about calculating capital gains from U.S. stocks.
What are capital gains?
Capital gains represent the profit you make when you sell a stock for more than you paid for it. Think of it as the difference between your buying price and selling price. If you bought Apple stock at $100 and sold it at $150, your capital gain is $50 per share.
The U.S. stock market generates trillions in capital gains each year. Every time you sell a profitable investment, you create a taxable event. The government wants its share of your profits through the capital gains tax.
Understanding the basics of capital gains calculation
Calculating capital gains from U.S. stocks involves a simple formula:
Capital Gains = Selling Price - Purchase Price - Transaction Costs
Let's say you bought 100 shares of Microsoft at $200 per share. You paid $20,000 plus $10 in broker fees. Later, you sold those shares at $250 each for $25,000 minus $10 in selling fees.
Your calculation would be:
- Selling price: $25,000 - $10 = $24,990
- Purchase price: $20,000 + $10 = $20,010
- Capital gains: $24,990 - $20,010 = $4,980
Short-term vs long-term capital gains
The U.S. stock market treats capital gains differently based on how long you hold your investments. This timing makes a huge difference in your tax bill.
Capital gains short-term
Short-term capital gains apply when you sell stocks within one year of buying them. These gains face ordinary income tax rates, which can be as high as 37% for high earners.
Example: You buy Tesla stock in January and sell it in November of the same year. Any profit counts as short-term capital gains.
Capital gains long-term
Long-term capital gains kick in when you hold stocks for more than one year. These enjoy much lower tax rates: 0%, 15%, or 20% depending on your income level.
Example: You buy Amazon stock in March 2023 and sell it in April 2024. Since you held it for over a year, you qualify for long-term capital gains treatment.
Capital gains tax rates explained.
Understanding capital gains tax rates helps you plan your investment strategy better. The rates vary significantly between short-term and long-term holdings.
Short-term capital gains tax rate
Short-term gains face the same rates as your regular income:
- 10% for income up to $11,000 (single filers)
- 12% for income from $11,001 to $44,725
- 22% for income from $44,726 to $95,375
- 24% for income from $95,376 to $182,050
- 32% for income from $182,051 to $231,250
- 35% for income from $231,251 to $578,125
- 37% for income over $578,125
Long-term capital gains tax rate
Long-term rates are much more favourable:
- 0% for single filers with income up to $44,625
- 15% for income from $44,626 to $492,300
- 20% for income over $492,300
Step-by-step calculation process
Let's walk through a complete example to show you exactly how to calculate capital gains from U.S. stocks.
Step 1: Determine your cost basis
Your cost basis includes the purchase price plus any fees or commissions. If you bought stocks at different times, you need to track each purchase separately.
Example: You made three purchases of Google stock:
- January: 50 shares at $120 each = $6,000
- March: 30 shares at $130 each = $3,900
- June: 20 shares at $140 each = $2,800
- Total cost basis: $12,700 for 100 shares
Step 2: Calculate your proceeds
When you sell, subtract any selling fees from your gross proceeds. If you sold 40 shares at $160 each, your gross proceeds would be $6,400. After a $15 commission, your net proceeds equal $6,385.
Step 3: Determine which shares you sold
The IRS uses the "first in, first out" method unless you specify otherwise. For our example, selling 40 shares means you sold:
- 40 shares from your January purchase at $120 each
- Cost basis for these shares: 40 × $120 = $4,800
Step 4: Calculate your gain or loss
Capital gains = Net proceeds - Cost basis Capital gains = $6,385 - $4,800 = $1,585
Step 5: Determine the holding period
Since you bought in January and sold later in the year, this counts as short-term capital gains. You'll pay ordinary income tax rates on the $1,585 profit.
Advanced considerations for U.S. stocks
Dividend reinvestment plans
Many U.S. stocks offer dividend reinvestment plans (DRIPs). When dividends buy additional shares, those shares have their cost basis equal to the stock price on the reinvestment date.
Stock splits and dividends.
Stock splits and stock dividends affect your cost basis. If you own 100 shares at $50 each and the stock splits 2-for-1, you now own 200 shares with a cost basis of $25 each.
Wash sale rules
The wash sale rule prevents you from claiming losses if you buy substantially identical securities within 30 days before or after the sale. This rule can complicate your capital gains calculations.
Record keeping for capital gains
Proper record keeping makes capital gains calculation much easier. Track these details for every U.S. stock transaction:
- Purchase date and price
- Number of shares bought
- Brokerage fees and commissions
- Dividend reinvestment details
- Sale date and price
- Selling fees
Many brokerages provide year-end tax documents that summarise your capital gains and losses. However, you should still maintain your records for accuracy.
Tax planning strategies
Understanding capital gains tax helps you make smarter investment decisions in the U.S. stock market.
Tax-loss harvesting
You can offset capital gains with capital losses. If you have $5,000 in gains and $2,000 in losses, you only pay tax on $3,000 in net profits.
Holding period optimisation
Consider holding profitable investments for over one year to qualify for lower long-term capital gains rates. The tax savings can be substantial.
Retirement accounts
Contributing to 401(k)s and IRAs lets you invest in U.S. stocks without immediate capital gains tax consequences. You defer taxes until retirement, when you might be in a lower tax bracket.
Common mistakes to avoid
Many investors make costly errors when calculating capital gains from U.S. stocks:
- Forgetting to include transaction costs in calculations
- Mixing up short-term and long-term holding periods
- Not tracking the cost basis properly for partial sales
- Ignoring wash sale rules
- Failing to consider state taxes on capital gains

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Working with tax professionals
Complex investment portfolios often require professional help. Consider consulting a tax advisor if you:
- Trade frequently in the U.S. stock market
- Have significant capital gains or losses
- Use advanced strategies like options or short selling
- Need help with tax planning optimisation
Calculating capital gains from U.S. stocks becomes easier with practice and proper record-keeping. Start with simple buy-and-hold strategies while you learn the ropes. As your portfolio grows, you can explore more advanced techniques to minimise your capital gains tax burden while maximising your investment returns. Remember that tax laws change frequently, so stay informed about current rates and regulations that affect your U.S. stock investments.
Frequently asked questions about capital gains?

-
Capital Gains = Selling Price – Purchase Price – Transaction Costs
-
Example: Bought at $100, sold at $150, $5 fees on each side →
($150 - $5) - ($100 + $5) = $35 per share
- Convert gains to INR using the RBI rate on the sale date
- Long-term (held >24 months): 20% tax with indexation
- Short-term (≤24 months): taxed as regular income
- Claim credit for US taxes paid
- Yes. US taxes gains when you sell for a profit
- Short-term (≤1 year): taxed as income
- Long-term (>1 year): taxed at lower rates
- Short-term: 10%–37% (your income tax rate)
- Long-term: 0%, 15%, or 20% (most pay 15%)

Contributed by Denila Lobo
Denila is a content writer at Winvesta. She crafts clear, concise content on international payments, helping freelancers and businesses easily navigate global financial solutions.