Capital Gains Tax

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.