These gains don't cause pain. A capital gain is the amount of money you pocket by selling one of your investments for more than you paid for it. Technically, capital gains only count for what's called a capital asset, but that's really just anything you own for investment purposes. Stocks and bonds obviously qualify, but your house and household furnishings can also count.

For tax purposes, capital gains are classified as either long-term (held for more than one year) or short-term (held for less than one year) and there are different tax implications for how long you hold onto a capital asset. For most long-term capital gains, you're taxed no more than 15% of the value of the asset. Short-term gains get taxed as regular income, so you pay the rate for the tax bracket you're in.

Capital gains can also be realized or unrealized. When you physically sell an asset like a stock, you've realized the capital gain. When you're holding the stock, and it has a value over its purchase price, but you're not selling it, you've got an unrealized gain, and you won't realize it until you sell.

In a perfect world, we'd all have capital gains. But no one¿s that smart or lucky. When the value of an asset at sale is below what you've paid for it, it's called a capital loss. The good news is that the government lets you count that loss against any gains you've had, lowering the taxes you pay. In fact, many people who sell a stock that has risen far over their purchase price tend to sell some stinkers, too, at the same time for the tax benefit. This is known as a capital-loss offset.

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Friday, August 01, 2008

The Week's Top News And Analysis, July 28-Aug. 1

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MarketWatch

Atypically, the financial news started flowing over the weekend this week. It was then that Congress passed a far-reaching housing bill that offered help to homeowners, would be homeowners and, controversially, housing finance companies Fannie Mae and Freddie Mac. The weekend events got the week off to a fast and furious start that never slackened.

On Monday, Merrill Lynch (MER) announced that it would issue $8.5 billion in shares and unload billions of dollars of damaged debt securities in an attempt to shore up its balance sheet. Along with a few other high profile banks this was a week when people actually wondered if Merrill was in serious danger.

Some have argued since Merrill's announcement that stocks are bottoming as the effects of the housing slump and credit crunch dissipate. Others have said the crisis has months or years to run. Time will tell who is right, but as we reach the one-year anniversary of the slow-motion financial and economic disaster wrought by the real estate bubble, it is hard to ignore how much the U.S. market regulatory structure has changed.

The Dow Jones Industrial Average ($DJIA) fell 51.70 points or 0.5% on Friday to close at 11,326.32, marking a 0.4% loss for the week. The technology heavy Nasdaq Composite (.COMP) fell 14.59 points or 0.6% on the day to close at 2,310.96 but eked out a 0.02% gain on the week. The broader Standard & Poor's 500 Index (.SPX) fell 7.07 points or 0.6% for the day to end at 1,260.31, managing to gain 0.2% on the week.

Check out MarketWatch.com over the weekend for more news that affects your life and your portfolio. Our Weekend Edition takes a look back at one-year of credit upheaval and where we might be headed from here.

-- Christopher Noble, assistant managing editor

Help unwanted

Nonfarm payrolls fell for the seventh straight month in July, while the nation's unemployment jumped to 5.7%, a four-year high, according to the Labor Department. Since December, 463,000 jobs have been lost, the strongest signal yet that the economy is in a recession. Read the full story.

Accelerating into the red

Scrambling to align production toward smaller cars, General Motors (GM) reported Friday another massive loss as auto buyers continue to shift away from its profitable truck and SUV lines. In the past month, GM shares have tested levels not seen since 1954, with plunging sales and fears of a cash crunch fueling concerns in some quarters over a potential bankruptcy. Read the full story.

Exxon Mobil fails to impress

Fueled by soaring crude prices, Exxon Mobil (XOM) racked up a second-quarter profit of nearly $12 billion -- a number that works out to about $39 for every man, woman and child in America. Despite the staggering numbers, Wall Street was underwhelmed. It was the second consecutive quarter in which the company fell short of Wall Street's lofty expectations. Read the full story.

Deal talk

British Airways (BAY) and Spain's Iberia (014720003) disclosed this week that they were in merger talks as the airline industry seeks to consolidate to compensate for rising oil costs.

The two carriers are no strangers, thanks to a decade-old alliance, and a deal would position Madrid as the European gateway to Latin America. Some also see it as a step toward a bigger trans-Atlantic deal with AMR Corp.'s (AMR) American Airlines. Read the full story.

Back in vogue

A few years ago, Horizon Airlines decided that fueling jets to fly short distances was getting outrageously expensive, so it began switching to a fleet of propeller-driven, Bombardier Q400 turboprop planes. On the surface, they may look antiquated, but the aircraft offers passengers a quiet, comfortable ride - and they burn as much as 30% less fuel. Read the full story.

A first step in recovery

Alcatel-Lucent (ALU) will soon get a makeover after announcing plans to replace its top executives, but don't expect miracles from the troubled French-American company. The offspring of a cross-Atlantic merger in 2006, Alcatel-Lucent still faces hurdles as it seeks to lift sales and profit. Integration has not gone smoothly, new products have failed to stoke demand and competition remains as fierce as ever in the networking industry. Read the full story.

Pinched at the pump

The lazy days of summer are in full swing, but consumers are working hard to reduce their gasoline intake. The results have been dramatic.

Essentially, record retail prices for gasoline have finally managed to catch up and quell demand -- just enough to cause prices to fall back again. It's taken a while, but most analysts expect the weaker demand to stick, especially given the weak economy. Read the full story.

iPhone vs. BlackBerry

Research In Motion's (RIMM) leadership position in the smart-phone market, dominated by its BlackBerry, has been under attack by Apple Inc. (AAPL) and its popular iPhone. RIM's high-flying shares have sold off more than 20% since peaking in mid-June. Adding more pressure to the stock are reports about problems with a new touch-screen BlackBerry -- a product that hasn't even been officially announced. Why are investors so worried? Read Therese Poletti's column.

Signing on the line

This week, President Bush signed legislation aimed at shoring up the housing market, providing an emergency safety net for mortgage giants Fannie Mae (FNM) and Freddie Mac (FRE) and helping several hundred thousand families avoid foreclosure. Major components of the new law include allowing some homeowners to refinance into government-backed loans, extending a line of credit to Fannie and Freddie and modernizing the Federal Housing Administration. Read the full story.

Slowing Sun Belt

Given the recent woes in real estate and credit access, it might come as no big surprise that migration trends are being impacted. Some big Northern cities, such as Chicago and Boston, have turned around and posted population increases, while hot spots like Phoenix and Miami are showing signs of slowing down. Read the full story.