--- title: What is the Difference Between Capital Gains and Dividends? description: Explore the difference between capital gains and dividends to understand your potential tax liabilities and manage your wealth for retirement. image: https://www.realized1031.com/hubfs/Images/Featured/Page/Resource/200901_WEBSITE_NewsPageThumbnails_CapitalGains_V1.jpg --- [![Realized 1031 Exchange Marketplace](https://www.realized1031.com/hs-fs/hubfs/Images/Brand/Logo/Realized/Realized-Logo-Black.png?width=240&height=80&name=Realized-Logo-Black.png "Realized 1031 Logo") ](https://www.realized1031.com/) - [Wealth Management Gap](https://www.realized1031.com/the-wealth-management-gap) - [Our Process](https://www.realized1031.com/how-realized-works) - [Financial Advisors](https://www.realized1031.com/advisor) - [Resources](https://www.realized1031.com/resources) - [The Company](https://www.realized1031.com/about-us) - [Articles](https://www.realized1031.com/blog) [Register](https://www.realized1031.com/marketplace) [Log In](https://www.realized1031.com/login) - Better Business Bureau Rating: **A+** - [FINRA BrokerCheck](https://brokercheck.finra.org/firm/summary/22333) - [Call](tel:1-877-797-1031) **(877) 797-1031** # What is the Difference Between Capital Gains and Dividends? Posted Oct 18, 2022 ![200901_WEBSITE_NewsPageThumbnails_CapitalGains_V1](https://www.realized1031.com/hs-fs/hubfs/Images/Featured/Page/Resource/200901_WEBSITE_NewsPageThumbnails_CapitalGains_V1.jpg?width=656&height=656&name=200901_WEBSITE_NewsPageThumbnails_CapitalGains_V1.jpg) When working to build your wealth, it’s important to understand the difference between various returns you may receive on your assets. Two of the most common returns are capital gains and dividends. Each income comes from a different source and is taxed differently by the IRS.   Explore the difference between [capital gains](https://www.realized1031.com/glossary/capital-gain) and dividends to understand your potential tax liabilities and manage your wealth for retirement.   ### What are Capital Gains?  At a basic level, a capital gain is a [profit you make selling an asset](https://www.realized1031.com/blog/the-basics-of-capital-gains). Typically capital gains refer to proceeds from selling real estate, but they also apply to profits made by selling investments like stocks or bonds.   For the IRS to consider your profits a capital gain, the amount you sell the asset for must exceed its adjusted basis. Adjusted basis refers to the [change in your asset’s value](https://www.investopedia.com/terms/a/adjustedbasis.asp) since you first purchased it.   For example, you purchase a rental property for $200,000 and sell it for $500,000 several years later. If the adjusted basis is $300,000, your capital gains on the transaction will be $200,000, which is the amount you earned over the property’s adjusted value.   ### What are Dividends? [Dividends are distributions](https://www.realized1031.com/glossary/dividend) made to a company’s shareholders in exchange for their investment in the business. Dividends are usually made as a cash reward or additional stock and paid yearly, quarterly, or monthly from the company’s net profits.  The company’s board of directors manages dividend payouts to shareholders.   When you purchase stock in a company, you’ll have a dividend yield rate, which tells you how much return you can expect on your investment. This rate is based on the company’s share price. The dividend rate is typically provided by the company, so you can multiply the dividend rate by the number of shares to see your anticipated dividend.   ### How Do Capital Gains and Dividends Differ?  The most significant difference between capital gains and dividends is how the IRS taxes them. The IRS taxes capital gains based on how long you’ve held the asset. For assets held for less than a year, you can expect the IRS to tax your gains, called short-term gains, at your ordinary income rate. However, the IRS taxes profits you make on the sale of assets you’ve held for more than a year, called long-term gains, at the capital gains tax rate. The rate is [usually 15% but can go up to 28%](https://www.irs.gov/taxtopics/tc409) depending on the asset.   Dividends are similar in that the IRS can tax them as [capital gains or as ordinary income](https://www.irs.gov/taxtopics/tc404). You must report your dividends using IRS Form 1099-DIV to determine their type and applicable tax rate.   Ordinary dividends are taxed at your regular income tax rate, [between 10% and 37%](https://www.investopedia.com/terms/q/qualifieddividend.asp), while the IRS taxes qualified dividends at the lower capital gains rate. Typically dividends from real estate investment trusts (REITs) are reported as long-term capital gains.   If you earn dividend income or the sale of your assets, work with a trusted financial advisor or Certified Public Accountant. They can help you develop strategies, such as [using a 1031 exchange](https://www.realized1031.com/1031-exchange) to defer capital gains tax when selling your property in an effort to grow your wealth and manage your tax liability.  This material is for general information and educational purposes only. Information is based on data gathered from what we believe are reliable sources. It is not guaranteed as to accuracy, does not purport to be complete and is not intended to be used as a primary basis for investment decisions. It should also not be construed as advice meeting the particular investment needs of any investor.     Realized does not provide tax or legal advice. This material is not a substitute for seeking the advice of a qualified professional for your individual situation.  There is no guarantee that companies that can issue dividends will declare, continue to pay, or increase dividends.  All investments have an inherent level of risk. The value of your investment will fluctuate with the value of the underlying investments. You could receive back less than you initially invested and there is no guarantee that you will receive any income.  Examples are hypothetical and for illustrative purposes only.  Download The Capital Gains Tax Calculator [![Cap Gains Calculator For Investors](https://www.realized1031.com/hs-fs/hubfs/Images/UI/graphics/composites/laptop-capital-gains-calculator-spreadsheet.jpg?width=500&height=290&name=laptop-capital-gains-calculator-spreadsheet.jpg "Estimate the cap gains tax owed ...") ](https://www.realized1031.com/blog/what-is-the-difference-between-capital-gains-and-dividends#blogform) Download Calculator ---   --- ### Cap Gains Calculator For Investors ![Download The Capital Gains Tax Calculator](https://www.realized1031.com/hs-fs/hubfs/Images/UI/graphics/composites/laptop-capital-gains-calculator-spreadsheet.jpg?width=500&height=290&name=laptop-capital-gains-calculator-spreadsheet.jpg) Estimate the cap gains tax owed after selling an asset or property By providing your email and phone number, you are opting to receive communications from Realized. 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Explore the difference between capital gains and dividends to understand your potential tax liabilities and manage your wealth for retirement. What are Capital Gains? At a basic level, a capital gain is a profit you make selling an asset. Typically capital gains refer to proceeds from selling real estate, but they also apply to profits made by selling investments like stocks or bonds. For the IRS to consider your profits a capital gain, the amount you sell the asset for must exceed its adjusted basis. Adjusted basis refers to the change in your asset’s value since you first purchased it. For example, you purchase a rental property for $200,000 and sell it for $500,000 several years later. If the adjusted basis is $300,000, your capital gains on the transaction will be $200,000, which is the amount you earned over the property’s adjusted value. What are Dividends? Dividends are distributions made to a company’s shareholders in exchange for their investment in the business. Dividends are usually made as a cash reward or additional stock and paid yearly, quarterly, or monthly from the company’s net profits. The company’s board of directors manages dividend payouts to shareholders. When you purchase stock in a company, you’ll have a dividend yield rate, which tells you how much return you can expect on your investment. This rate is based on the company’s share price. The dividend rate is typically provided by the company, so you can multiply the dividend rate by the number of shares to see your anticipated dividend. How Do Capital Gains and Dividends Differ? The most significant difference between capital gains and dividends is how the IRS taxes them. The IRS taxes capital gains based on how long you’ve held the asset. For assets held for less than a year, you can expect the IRS to tax your gains, called short-term gains, at your ordinary income rate. However, the IRS taxes profits you make on the sale of assets you’ve held for more than a year, called long-term gains, at the capital gains tax rate. The rate is usually 15% but can go up to 28% depending on the asset. Dividends are similar in that the IRS can tax them as capital gains or as ordinary income. You must report your dividends using IRS Form 1099-DIV to determine their type and applicable tax rate. Ordinary dividends are taxed at your regular income tax rate, between 10% and 37%, while the IRS taxes qualified dividends at the lower capital gains rate. Typically dividends from real estate investment trusts (REITs) are reported as long-term capital gains. If you earn dividend income or the sale of your assets, work with a trusted financial advisor or Certified Public Accountant. They can help you develop strategies, such as using a 1031 exchange to defer capital gains tax when selling your property in an effort to grow your wealth and manage your tax liability. This material is for general information and educational purposes only. Information is based on data gathered from what we believe are reliable sources. It is not guaranteed as to accuracy, does not purport to be complete and is not intended to be used as a primary basis for investment decisions. It should also not be construed as advice meeting the particular investment needs of any investor. Realized does not provide tax or legal advice. This material is not a substitute for seeking the advice of a qualified professional for your individual situation. There is no guarantee that companies that can issue dividends will declare, continue to pay, or increase dividends. All investments have an inherent level of risk. The value of your investment will fluctuate with the value of the underlying investments. You could receive back less than you initially invested and there is no guarantee that you will receive any income. Examples are hypothetical and for illustrative purposes only.", "articleSection" : [ "Capital Gains" ], "author" : { "@type" : "Person", "email" : "marketing@realized1031.com", "image" : "", "name" : "The Realized Team", "url" : "https://www.realized1031.com/blog/author/the-realized-team" }, "dateModified" : "2022-10-19T15:55:42+0000", "datePublished" : "2022-10-19T15:55:42+0000", "description" : "Explore the difference between capital gains and dividends to understand your potential tax liabilities and manage your wealth for retirement. 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