Definition
Capital Gains represent the profit earned when an asset is sold for more than its cost basis (typically the original purchase price plus improvements and acquisition costs). For tax purposes, gains are classified as short-term (held one year or less) or long-term (held more than one year), with long-term gains generally taxed at lower rates.
Significance in Alternative Asset Valuation
Alternative assets often generate substantial capital gains due to appreciation over long holding periods. A painting purchased decades ago for thousands might now be worth millions, creating significant tax implications upon sale.
Key considerations for alternative asset capital gains:
- Collectibles rate: Art, antiques, and other collectibles face a maximum 28% federal rate, higher than standard long-term capital gains rates
- Basis documentation: Proving original cost basis requires purchase records that may be decades old
- Charitable strategies: Donating appreciated assets can avoid capital gains while providing deductions
- Estate planning: Stepped-up basis at death eliminates unrealized gains for heirs
Accurate valuation is essential for capital gains planning, as it determines whether to sell, donate, or hold assets based on tax-optimized strategies.
How Impossival Approaches This
We track both current market values and, where available, historical purchase information to help advisors understand potential capital gains exposure across portfolios. This analysis informs tax-efficient disposition strategies.
Related Concepts
• Cost Basis - Original value used to calculate gains • Stepped-Up Basis - Basis reset at inheritance • Fair Market Value - Current value for gain calculations • Estate Tax - Tax planning that interacts with capital gains strategies