Capital gains on domain sales, explained
Under US federal rules, almost everything you hold for investment is a capital asset, and the gain is the amount realized minus your adjusted basis, which generally starts with what you paid. Holding the asset more than one year makes the gain long-term, which can qualify for lower rates than ordinary income; one year or less makes it short-term. Property held mainly for sale to customers is not a capital asset, so someone who buys and sells domains as a business may be treated as a dealer with ordinary income instead.
Rules outside the US differ widely, and how renewal fees, dropped names and marketplace commissions are treated depends on your situation and country. Keep records for every name: purchase date, price, fees, renewals, sale price and commissions. This is general information, not tax advice; consult a qualified tax professional before you file or structure your domain activity.
Example. A US investor who is not a dealer and sells a .com held for three years, bought for a low four-figure sum, at a mid five-figure price would typically report a long-term capital gain.
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Education, not financial, legal or tax advice. Domain investing is speculative and most domain names never sell. Read the disclaimer.
