---
title: "Capital-gains tax"
description: "Capital-gains tax is the tax charged on a realized gain when you sell a position at a profit. Which rate applies follows your tax residency."
canonical_url: "https://fincanva.com/glossary/capital-gains-tax"
last_updated: "2026-10-07"
md_url: "https://fincanva.com/glossary/capital-gains-tax.md"
---

# Capital-gains tax

Capital-gains tax is the tax charged on a **realized gain** — the profit when you sell a position for more than you paid. It is charged on your **net** result: realized losses are set against realized gains, and paper gains on positions you still hold are never taxed. Your [tax residency](/glossary/tax-residency) decides whether a short-term and a long-term rate exist.

**Also seen as:** CGT, tax on realized gains

## How is capital-gains tax calculated?

Capital-gains tax is the applicable rate multiplied by the **taxable gain**: your realized gains after realized losses have been set against them, not each winning position on its own.

$$
\begin{gathered}
{\text{taxable gain}} = {\text{realized gains}} - {\text{losses set against them}} \\[6pt]
\text{tax} = {\text{applicable rate}} \times {\text{taxable gain}}
\end{gathered}
$$

where:

- what is left of the year's gains once losses are set against them — never below zero
- the profits locked in by positions closed during the year
- the year's realized losses, plus losses carried forward from earlier years
- the short-term or the long-term rate, chosen by your residency and how long the position was held

The tax is the rate times what remains of the gains once losses are taken off. A [strategy](/glossary/strategy) that closed one position for +1,000 and another for −400 in the same year is taxed on 600, not on 1,000; a year whose losses exceed its gains is taxed on zero and carries the remainder forward — never a negative tax. Reading the rate against gross gains overstates the drag taxes put on a strategy, most of all one that trades a lot.

## How does Fincanva handle it?

- The rates are percentages of the gain, seeded from your [tax residency](/glossary/tax-residency) and labelled "Short-term capital gains" and "Long-term capital gains"; for Italian residency they are set by law for the selected [tax regime](/glossary/tax-regime) and shown as "Auto-updated". [Set the tax rules your backtests use](/docs/backtesting/set-the-tax-rules-your-backtests-use) is where you change them.
- Tax is charged only on realized gains, at the full applicable rate, and only when [Taxes](/glossary/taxes-toggle#what-does-turning-taxes-on-change) is on in your [simulation assumptions](/glossary/simulation-assumptions) — which also sets aside, in each day's value, the tax still-open gains would owe if sold that day.
- When the tax leaves the account follows the [tax regime](/glossary/tax-regime): once a year, on the year's net result, under **United States**, **Other** and the Italian **Declarative** regime; as each gain is realized under the Italian **Administered** regime.

## How long must a position be held to count as long-term?

**More than one year — more than 365 days between opening and closing the position.** A position held for exactly 365 days is still short-term; it has to pass the threshold, not merely reach it.

The clock starts when the position is **first** opened. Buying more of an [instrument](/glossary/instrument) you already hold does not restart it, and selling part of a position is measured from that same first purchase — the clock only resets once the position has been closed completely.

The threshold only changes the rate under the residencies that have two rates, **United States** and **Other**. Under **Italy** a single rate applies however long the position was held.

## What happens to a realized loss?

A realized loss reduces the gains you are taxed on, and the part you cannot use this year carries forward. **How long it stays usable, and against what, depends on your residency:**

- **United States** and **Other** — the loss carries forward with no time limit and keeps its short-term or long-term character.
- **Italy** — the loss stays usable for five years, counted according to the [tax regime](/glossary/tax-regime); with a single rate there is no character to keep, and **a gain on an ETF cannot be reduced by any loss, while a loss on an ETF can reduce other gains.**

The full rules for each residency, and what the Italian ETF rule does to a strategy built mainly of ETFs, are in [Set the tax rules your backtests use](/docs/backtesting/set-the-tax-rules-your-backtests-use#how-does-a-loss-reduce-tax-under-united-states-and-other-residency).

## What does it look like in practice?

A strategy closes two positions in the same year: one for a **1,000 gain**, held eighteen months, and one for a **400 loss**.

Under **United States** residency the loss is set against the gain first, so the taxable gain is 1,000 − 400 = **600**. The winner was held more than a year, so it meets the 20% long-term rate: 20% × 600 = **120 of tax**. Close the same winner at eleven months and the netting is unchanged, but the gain is short-term and meets the 35% rate: 35% × 600 = **210 of tax** — 90 more, on the same pair of trades.

Give the strategy a **1,400 loss**, on a briefly held position, instead of a 400 one. Losses exceed gains, so the tax is **0**, and the unused 400 carries forward as a **short-term** loss, available against short-term gains in any later year of the run.

Under **Italy** residency, on the default **Declarative** regime, the single 26% rate applies whatever the holding period: 26% × 600 = **156 of tax**. If the winner was an **ETF**, its gain cannot be offset, so the whole 1,000 is taxed: 26% × 1,000 = **260 of tax**, while the 400 loss stays available against the strategy's non-ETF gains.

Fincanva is for education and illustration only. It is not personalised financial advice, and past or simulated results do not predict future ones. [Read the Terms Addendum](https://fincanva.com/terms/addendum#section-3)