A capital gain is the profit you make when you sell a capital asset for more than you paid for it, measured as the sale price minus your cost basis.
Last reviewed 23 August 2025 · Educational, not advice
A capital gain is the profit you earn when you sell something you own for more than you paid for it. The thing you own is called a capital asset, common examples being shares, bonds, property, or other investments. The gain is worked out as the amount you received when you sold, minus your cost basis, which is broadly what you paid plus certain costs of buying. If you buy an asset for a hundred dollars and later sell it for a hundred and forty, the forty dollar difference is your capital gain. If you sell for less than your basis, the result is a capital loss instead.
A central feature of a capital gain is that it is usually counted only when it is realised. Realised means you have actually sold the asset and locked in the result. While you simply hold something that has risen in value, the gain is unrealised, a paper gain that can still rise or fall before you sell. This distinction matters because tax systems typically focus on realised gains. The moment of sale is generally what turns a change in value into a gain or loss that can be reported, which is why record keeping centres on what you paid, what you received, and when each happened.
In the United States, capital gains are often divided into short term and long term, and the split usually depends on how long you held the asset. Gains on assets held one year or less are commonly treated as short term and taxed at ordinary income rates, while gains on assets held longer than a year are commonly treated as long term and may be taxed at lower rates, as of August 2025. These rules carry many conditions and exceptions, can change with legislation, and depend on your personal circumstances, so they are a general description rather than a calculation you should rely on for your own return.
For prediction markets and event contracts, the key point is that the tax treatment is genuinely unsettled. As of August 2025 there is no specific Internal Revenue Service guidance on how proceeds from these contracts should be taxed, and tax professionals describe several possible treatments. Some view the contracts as capital assets, which would bring capital gains rules into play. Others argue the proceeds may be gambling income taxed as ordinary income, and others point to a possible treatment as Section 1256 contracts, which carry a sixty forty split between long term and short term regardless of holding period. These views are contested and the outcome can vary by person and platform. Many venues also do not issue tax forms, yet income can still be taxable, and the responsibility to track and report generally rests with the taxpayer. Because this is unclear and consequential, the sensible step is to keep careful records and consult a qualified tax professional. We do not give tax advice.
You buy a holding for one thousand dollars and later sell it for one thousand three hundred. Your capital gain is three hundred dollars, the sale price minus your basis. Whether that gain is taxed as short term or long term would, for many assets, depend on how long you held it. For prediction market proceeds, even which category applies is unsettled as of August 2025, which is exactly why the worked number is only the start of the question, not the answer.
Illustrative only. Not tax advice and not a calculation for your own return. Consult a qualified professional.
A gain on paper is not money in hand, and the tax owed on a realised gain can be larger than you expect, especially where the treatment is unsettled. Keep records and seek professional advice. Stake only what you can afford to lose, never to chase a loss, and never on borrowed money. If it stops feeling like a free choice, step back. In the United States you can call or text the helpline on 1-800-GAMBLER or visit ncpgambling.org.
A capital gain is the profit you make when you sell a capital asset for more than you paid for it. The gain is the sale price minus your cost basis. It is generally counted only when the gain is realised, meaning when you actually sell, not while you simply hold the asset.
In the United States the distinction usually depends on how long you held the asset. Assets held one year or less are typically treated as short term and taxed at ordinary income rates, while assets held longer than a year are typically treated as long term and may be taxed at lower rates, as of August 2025. Rules can change and vary by situation.
It is unsettled. There is no specific IRS guidance, and tax professionals describe several possible treatments, including capital gains, gambling income, or a sixty forty split under Section 1256, as of August 2025. This is contested and your situation may differ, so consult a qualified tax professional.
Many platforms do not issue tax forms, but income can still be taxable whether or not a form arrives, and the responsibility to track and report generally falls on the taxpayer. Keep your own records and seek professional advice. This is general information, not tax advice.
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