Do You Pay Capital Gains on a GIA?

A General Investment Account (GIA) serves as a common vehicle for individuals seeking to grow their wealth through various investments. Investments within a GIA are generally subject to capital gains tax, unlike certain tax-advantaged accounts. This article explains how capital gains are determined and the process for reporting them.

Understanding a GIA

A General Investment Account (GIA) is an investment account that does not offer the same tax benefits as retirement accounts, such as a 401(k) or an Individual Retirement Account (IRA). Investment growth, including capital gains, dividends, or interest, is subject to taxation when realized or received. GIAs do not have contribution limits, offering flexibility in the amount an individual can invest and withdraw. While a 401(k) or IRA allows investments to grow tax-deferred or tax-free, a GIA requires annual reporting of taxable events. Investors commonly hold various assets in a GIA, including individual stocks, bonds, mutual funds, and Exchange Traded Funds (ETFs).

Capital Gains and Your GIA

When you sell an investment in a GIA for more than its original purchase price, the profit is a capital gain. If you sell for less, you incur a capital loss. Capital gains are taxed only when “realized,” meaning the investment has been sold. An increase in an investment’s value on paper, an “unrealized gain,” is not taxed until the asset is sold. The tax rate depends on how long you owned the investment.

Gains from assets held for one year or less are short-term capital gains, taxed at ordinary income tax rates (10% to 37% for 2025). Gains from assets held for more than one year are long-term capital gains, which receive preferential tax treatment (0%, 15%, or 20% for 2025). High-income taxpayers may also be subject to a 3.8% Net Investment Income Tax (NIIT) on investment income, including capital gains, if their modified adjusted gross income exceeds certain thresholds ($200,000 for single filers or $250,000 for married couples filing jointly).

How to Calculate Capital Gains for a GIA

Calculating capital gains or losses for investments in your GIA involves two key figures: “Proceeds of Disposition” and “Adjusted Cost Basis (ACB).” Proceeds of disposition represent the total amount you receive from selling an investment, accounting for the sale price minus any selling expenses, such as brokerage commissions or fees. The adjusted cost basis is the original purchase price of the investment, plus any costs incurred to acquire it, like brokerage commissions or trading fees. It also includes adjustments for reinvested dividends or capital gains distributions, which increase your basis, or stock splits, which change the per-share basis.

The formula for calculating a capital gain or loss is: Capital Gain or Loss = Proceeds of Disposition – Adjusted Cost Basis. For example, if you purchased 100 shares of a stock for $50 per share, paying a $10 commission, your initial cost basis would be $5,010. If you later sold those 100 shares for $70 per share, incurring a $10 commission on the sale, your proceeds of disposition would be $6,990. Your capital gain would then be $1,980 ($6,990 – $5,010).

When you make multiple purchases of the same security, the IRS allows different methods for determining the cost basis of the shares you sell, such as First-In, First-Out (FIFO), specific identification, or average cost (primarily for mutual funds). Maintaining accurate records of all purchase and sale transactions, including dates, prices, and associated fees, is important for correctly calculating your adjusted cost basis.

Reporting GIA Capital Gains

When you realize capital gains or losses from your GIA, you must report these on your federal income tax return. Your brokerage firm will provide IRS Form 1099-B, “Proceeds From Broker and Barter Exchange Transactions,” by mid-February each year. This form summarizes your investment sales, including the date of sale, gross proceeds, and often the cost basis. You are responsible for ensuring the accuracy of your reported cost basis.

You will use Form 1099-B information to complete IRS Form 8949, “Sales and Other Dispositions of Capital Assets.” This form details each sale, categorizing them as short-term or long-term and noting whether the cost basis was reported to the IRS. The totals from Form 8949 are then carried over to Schedule D (Form 1040), “Capital Gains and Losses,” where you calculate your net capital gain or loss for the year.

Capital losses can be used to offset capital gains. If your capital losses exceed your capital gains, you can deduct up to $3,000 ($1,500 if married filing separately) of net capital loss against your ordinary income. Any unused capital losses can be carried forward indefinitely to offset future capital gains or a limited amount of ordinary income in subsequent tax years.

The tax filing deadline is typically April 15th of the year following the tax year in which the gains or losses were realized.