Capital Gains

Capital Gains

Capital gains refer to the increase in the value of an asset or investment over time, which is realized when the asset is sold for a higher price than its original purchase price.

There are two types of capital gains:

1. Short-term capital gains: These are gains on assets held for one year or less and are typically taxed at the individual’s ordinary income tax rate.

2. Long-term capital gains: These are gains on assets held for more than one year and are usually taxed at a lower preferential tax rate, which varies based on the taxpayer’s income level.

For example, if an investor buys shares of stock for $1,000 and later sells them for $1,500, the capital gain is $500. If the shares were held for more than a year, this gain would be classified as a long-term capital gain.