How Capital Gains Taxes Work
Capital gains tax is a tax on the profit that is made from the sale of a non-inventory asset that was purchased at a lower price. The most common capital gains are realized from the sale of stocks, bonds, precious metals, and property.
In the United States, assets held for more than one year are subject to long-term capital gains tax rates, which are typically lower than standard income tax rates. Assets held for one year or less are taxed as ordinary income (short-term capital gains).
Short-term vs Long-term
- Short-term: Assets held for 1 year or less. Taxed at your ordinary income tax bracket.
- Long-term: Assets held for more than 1 year. Taxed at 0%, 15%, or 20% depending on your taxable income.