Capital Gains Tax

Capital gains tax is a tax imposed on the profit earned from the sale of assets, such as stocks, bonds, or real estate. Capital gains are classified as either short-term or long-term, depending on how long the asset was held before being sold.

• Short-term capital gains: Profits from assets held for less than a year are taxed at ordinary income tax rates.
• Long-term capital gains: Profits from assets held for more than a year are taxed at a lower rate, typically ranging from 0% to 20%, depending on the taxpayer’s income level.

Taxpayers can reduce their capital gains tax liability by using strategies such as tax-loss harvesting, where they offset gains with losses from other investments. Certain assets, like primary residences, may qualify for capital gains exclusions, further reducing the amount of tax owed.

Understanding how capital gains tax works is essential for investors and homeowners looking to minimize their tax burden when selling assets.