a rock for $20, and sells the same rock for $20, there is no tax, since there is no profit. If, however, that person buys a rock for $20 and then sells the same rock for $25, then there is a capital gain on the rock of $5, which is thus taxable. The purchase price of $20 is analogous to cost of sales.

Typically, capital gains tax is due only when an asset is sold. However, the rules for this are very complicated. If tax is paid because the value has increased, the new value will be the cost basis for any future tax.

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