You do not pay tax when an ETF appreciates in value until you sell any portion of the ETF unless you receive a dividend. In your example you would not pay tax on the appreciation of the ETF until you sell part of it. Once you sell, the cost basis on the shares that you sell will be compared to the proceeds received and you will pay tax on that amount. The brokerage firm should provide you a 1099 tax form with the cost and proceeds.
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