Capital Gains Tax

Capital Gains Tax is a tax on the profit realized from the sale of non-Inventory Assets, such as Stocks, Bonds, real estate, and other investments. The gain is the difference between the selling price and the purchase price of the Asset. Capital gains can be classified into two types: short-term and long-term.

Short-term Capital gains apply to Assets held for one year or less and are typically taxed at the individual’s Ordinary Income tax rates. Long-term Capital gains, on the other hand, apply to Assets held for more than one year and are usually taxed at reduced rates, which can vary based on the taxpayer’s income level.

For example, if an investor buys Shares of Stock for $1,000 and sells them for $1,500 after two years, the $500 profit is considered a long-term Capital gain and would be taxed at the long-term Capital gains rate.

In another case, if the same investor sells the Shares after six months for $1,200, the $200 profit would be classified as a short-term Capital gain and taxed at their Ordinary Income tax rate.