Capital Gains Tax: A Comprehensive Overview

What is Capital Gains Tax?

Capital gains tax is a tax imposed on the gains realized from the sale or exchange of capital assets. Capital assets include stocks, bonds, real estate, and other investments that are held for more than a year.

Key Points

• Capital gains tax rates vary depending on the holding period and the taxpayer's income bracket.
• Long-term capital gains rates are generally lower than short-term capital gains rates.
• Capital losses can be used to offset capital gains.

The sale of a capital asset can result in either a capital gain or a capital loss. A capital gain occurs when the proceeds from the sale exceed the cost basis of the asset. The cost basis is the original purchase price of the asset plus any additional costs incurred in acquiring and holding the asset.

Capital gains are taxed at a lower rate than ordinary income. The exact rate depends on the taxpayer's holding period and the taxpayer's income bracket. For 2023 and 2024, the long-term capital gains tax rates are 0%, 15%, and 20%. For short-term capital gains, the tax rate is the same as the taxpayer's ordinary income tax rate.