What is Capital Gains Tax?
Definition Capital gains tax applies to the profit from selling an asset such as stock, real estate, or a business interest. Gains on assets held one year or less are short-term and taxed at ordinary income rates, while gains on assets held longer than a year are long-term and taxed at lower preferential rates. Capital losses can offset gains and, to a limited extent, ordinary income.
The one-year holding line can dramatically change the tax on a sale, making timing and loss coordination important for investors and business sellers.