capitalgains

Capital gains refer to the profit realized from the sale of a capital asset. A capital asset is generally defined as property held for investment or personal use, such as stocks, bonds, real estate, or collectibles. When an asset is sold for more than its original purchase price, or basis, the difference is considered a capital gain. The basis typically includes the original cost of the asset plus any associated expenses like commissions or improvements.

Capital gains are categorized into two types based on the holding period: short-term and long-term. Short-term capital gains arise from assets held for one year or less, while long-term capital gains result from assets held for more than one year. The tax treatment of these gains often differs. In many jurisdictions, short-term capital gains are taxed at ordinary income tax rates, which can be higher. Long-term capital gains are frequently subject to more favorable, lower tax rates.

Taxation of capital gains varies significantly by country and can be influenced by factors such as the type of asset sold, the taxpayer's income level, and specific tax laws. Some countries may offer exemptions or deductions for certain capital gains, while others might implement capital gains taxes as a regular source of revenue. Understanding the holding period and the applicable tax regulations is crucial for investors to manage their tax liabilities effectively.