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.
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Finance: What is Capital Gains Tax?7 Views
Finance a la shmoop what is capital gains tax? alright people you've invested
your hard-earned savings from working 72 hours a week all year you put 10 grand
to work seven years ago in buying Heinz ketchup stock at 50 bucks a share
200 shares then this year along comes Warren Buffett and Berkshire Hathaway to [Warren and Berkshire appear]
confirm what a brilliant investor you were and they buy for all cash the
company Heinz ketchup for $200 a share you've made four times your money in
seven years nice work well you have a gain of 150 bucks a share which you are
gonna fully realize like you'll realize that capital gain in the form of
receiving cash like oh I realize I have cash in my bank account yay me!
so all this was so good such a nice day until you realize that you live in a [Woman frollocking in a meadow]
blue state with massive taxes and that you'll now give back about a third or
more of your investment gains that is you invested 10 grand it became 40 grand
the old-fashioned way you had 30 grand of profits and now uncle sam says i want [Uncle Sam demanding I want your cash]
your cash and you now pay about 10 grand roughly a third of it in taxes of
your gains of that 30 grand back to Uncle S, sadly you are paying back in
taxes about the same amount you invested in the first place yep lots of hard work
lots of taxes how's that feel?
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