Capital Gains Tax: A Comprehensive Overview
Understanding Capital Gains
A capital gain is a profit realized when an asset is sold for a higher price than its purchase price. This gain is subject to taxation in many jurisdictions, known as capital gains tax.
Tax Rates for Capital Gains
Capital gains tax rates vary depending on the jurisdiction. Generally, long-term capital gains, which are profits from assets held for more than a specified period, are subject to lower tax rates than short-term capital gains, which are profits from assets held for a shorter period.
How Are Capital Gains Taxed?
At the federal level, capital gains are taxed based on several factors, including the type of asset sold, the holding period, and the taxpayer's income bracket. The Internal Revenue Service (IRS) categorizes capital gains into two primary types:
- Short-term capital gains: From assets held for one year or less
- Long-term capital gains: From assets held for more than one year
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