Capital Gains

Bought at $50 and sold at $80, the $30 is a capital gain. It becomes taxable only on sale. An unrealized gain is untaxed for as long as the position is held, which makes the timing of a sale a decision with a tax consequence attached.

The holding period splits the treatment. Held a year or less, gains are taxed as ordinary income, currently up to 37%. Held longer than a year, they fall to the long-term rates of 0%, 15% or 20%, plus the 3.8% net investment income tax above certain thresholds.

The size of that step is what makes the boundary worth knowing. The same gain can face a rate 15 to 20 points apart depending on which side of the twelve-month line the sale falls, and the line is measured from the day after acquisition.