Capital gains tax is a tax paid on the profit of an asset. Basically, if you buy an asset, like a piece of real estate (or a stock, or a bond, etc.) and then sell it later for more than you paid, you made money (yay!). But the government wants its share too (boo!).
The process is set up in a similar manner as income taxes. In the U.S., businesses and individuals pay capital gains tax on their assets, though rates can vary by state. Short-term gains tend to be taxed at the income tax rate assigned to the business or individual, longer investments tend to have a lower rate. For some tax brackets, there is no tax applied, or if they lived in the residence for at least two of the last five years prior to the sale.
Related or Semi-related Video
Finance: What is Capital Gains Distribut...20 Views
Finance a la shmoop what are capital gains distributions? cap gains app
hap-happy day.. your mutual fund invested a hundred grand in whatever.com it then [Mutual fund appears]
was bought by Google for three hundred grand
three years after you invested at least that was your portion that three hundred
grand well you had a gain of two hundred grand
on your investment and because Google paid cash not stock in acquiring
whatever.com on your books the gain was realized ie turned into cash so then the
mutual fund has to distribute to you that capital gains ie the cash it [Capital gains definition appears]
realized in selling the company to the kindly loving people at Google whose
motto is do only a little bit of evil right so one more time for the people in
the back how does this capital gains distribution thing work well the fund
manager looking out for your mutual fund may sell or buy some of the stocks or [Fund manager appears with stocks and bonds]
bonds in your fund if she sells and makes a profit well then that profit or
the proportionate gains part of it has to be distributed to the fund holder and
that's you and then of course you got to pay taxes
on that distribution if your fund is held in a normal account like it's in a
401k or an IRA you'll pay taxes on it later but not right away and if you own
it personally well you'll pay at that year yeah Uncle Sam always needs to get [Uncle Sam appears]
his cut when there's capital gains distribution if he doesn't he gets angry
and you know you wouldn't like Uncle Sam when he's angry [Uncle Sam turns into Hulk]
Up Next
What is Capital Gains Tax? Capital gain taxes are taxes collected by the IRS on trading profits from investments in equities, real estate, or any o...