Capital Gains vs. Capital Losses

If you sell an investment for more than you paid → Capital Gain
If you sell it for less than you paid → Capital Loss

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Capital losses can be used to reduce the amount of tax you owe on your capital gains — more on that later.

 

Capital Gains in Canada

In Canada, only 50% of your capital gain is taxable.

 

Let’s say you bought shares for $2,000 and sold them later for $5,000:

• Your capital gain is $3,000 ($5,000 - $2,000)

• Only 50% is taxable = $1,500 added to your income for that year

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That $1,500 is then taxed at your marginal income tax rate (whatever tax bracket you fall into).

 

Example: Sarah earns $60,000 from her job. She also makes a $3,000 capital gain from selling stocks. Only 50% of that ($1,500) is added to her taxable income:

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• New taxable income = $61,500

• She pays tax on that $1,500 based on her usual tax bracket

 

What’s Exempt? (CA)

Good news: Not everything is taxed.

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• Your primary residence: If you sell your main home in Canada and make a profit, that gain is usually tax-free.

• Tax-Free Savings Account (TFSA): Investments inside a TFSA are not taxed, even when sold for a gain.

 

Capital Losses in Canada

If you lose money on an investment, you can use that capital loss to offset capital gains, not regular income. You can:

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• Use it in the current year

• Carry it back 3 years

• Carry it forward indefinitely

 

Capital Gains in the United States

In the U.S., capital gains are taxed based on how long you held the asset before selling.

 

Short-Term vs. Long-Term Capital Gains (US)

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1. Short-Term: Asset held less than 1 year

   • Taxed at your regular income tax rate

   • Can be as high as 37%, depending on your income

2. Long-Term: Asset held over 1 year

   • Taxed at lower rates: 0%, 15%, or 20%, depending on your income level

 

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Reporting Capital Gains

In both Canada and the USA, if you sell investments or property, you must report the gain (or loss) on your tax return.

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• In Canada, it’s reported on Schedule 3 of your tax return

• In the USA, it’s reported on Form 8949 and Schedule D

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Many online platforms (like Questrade, Wealthsimple, Robinhood, or Fidelity) provide you with an annual summary, so it’s easier to file your taxes.

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Smart Tips to Handle Capital Gains

 

1. Hold for the Long Term

• In the U.S., holding assets longer than a year means you pay less tax

• In Canada, you always pay tax on 50% of the gain, but longer-term investing still reduces risk and gives time for gains to grow

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2. Use Tax-Sheltered Accounts

• Canada: Use a TFSA or RRSP to defer or eliminate taxes

• U.S.: Use Roth IRA, 401(k), or Traditional IRA

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3. Offset with Capital Losses

• Did one of your investments lose money? You can use that to lower how much tax you pay on other profitable investments.

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4. Time Your Sales Wisely

• If you're expecting to earn less income next year, it might make sense to wait to sell a big investment, so you're in a lower tax bracket

• In the U.S., this can reduce your long-term capital gains tax

 

 

Final Thoughts

 

Capital gains are one of the most important parts of building wealth through investing. Whether you’re flipping real estate, trading stocks, or investing in Bitcoin, understanding how capital gains work helps you make smarter decisions and keep more of your money.

In Canada, remember: only 50% of your gains are taxed.

 

In the USA, the length of time you hold the investment matters: over one year = lower tax.

Tax rules can be complicated, but you don’t have to be an accountant to get the basics. By knowing how capital gains work, you can start planning your investments smarter — and keep more profits in your pocket.