APPRECIATION. The rise in value of an asset. Appreciation can be due to inflation or can represent a real gain in value. Appreciation is not consistently taxed under the current inconsistent income tax.
AFTER-TAX DOLLARS. Dollars that have already been taxed. If you earn $10,000 at work and your taxes come to $1,500, you are left with $8,500 in after-tax dollars. You should not be taxed on this amount again. See also basis.
AVERAG E TAX RATE. The tax rate that an average dollar bears in taxes. Under an income tax, the average tax rate is calculated by dividing one's total taxes by one's total income. See also marginal tax rate.
BASE. See tax base.
BASIS. After-tax dollars. If you invest with money that has already been subject to the income tax, you have basis in the investment equal to its cost: that value cannot be taxed again. Roth IRAs have basis because the contributions to fund them are not tax deductible. If, on the other hand, you get a tax deduction for an investment, you have no basis in the investment, so its value can still be subject to an income tax. Traditional IRAs do not have basis because the contributions to them are tax deductible. The current income tax allows one to receive certain types of income tax free: cash gifts, tax-exempt interest, the proceeds of life insurance, and so on. Because you are not supposed to ever pay tax on such items, they have basis. See also after-tax dollars; carryover basis; stepped-up basis.
BUILT-IN GAIN. Appreciation that has not yet been taxed. If you buy a share of stock for $100 and it rises in value to $150, you will have $50 of built-in gain, also called unrealized appreciation.
CAPITAL ASSET. Property that has been held for over one year. Investments can be capital assets; inventory and certain self-created assets, such as books and paintings in the hands of writers and artists, cannot.
CAPITAL APPRECIATION. The rise in value of a capital asset.
CAPITAL GAIN OR LOSS. The tax gain or loss that is realized when a capital asset is sold.