How to Calculate a Long-Term Investment

Profits on long term investments mean that the investor will be required to pay capital gains taxes.  An investment is considered long term if the asset has been held for more than one year before being sold.  As you dispose of assets such as real property, stock shares, or any other securities, it is wise to keep the tax consequences in mind before completing the transaction.

In order to estimate the amount to pay in capital gains taxes, use IRS Schedule D for the most recent tax year.  The schedule, along with instructions for filling it out, can be obtained directly from the IRS.  This process will only produce an estimate.  Keep in mind that tax laws can change from year to year.

• Maintain detailed record keeping.  An investment is classified as short or long term based on the time it is held.  It is therefore important to keep a record of the purchase price and date that it was acquired.  This information will be used once the asset is disposed of in order to determine the tax rate by which the profits will be taxed. 


• Track any costs associated with upkeep, acquisition, or disposition of the asset should also be accounted for in your records.  In the case of real property, expenses such as repairs, taxes, insurance, and real estate commissions should all be tracked.  When the asset is ready to be disposed of, these expenses will be added to the purchase price in order to calculate the cost basis for that item.  In the case of stock shares, any trading costs or brokerage commissions should be taken into account in the same manner.


• Calculate the profit.  This calculation should only be done for investments that qualify as long term.  Subtract the cost basis from the sale price in order to arrive at the profit amount in dollars.  This figure will then be inputted into the Schedule D form in order to calculate the capital gains taxes to be paid.