A capital gains tax is a tax applied to realized capital gains upon the sale of an asset, such as stocks or real estate. Capital gains tax rates depend on many factors, including the duration of ownership and the asset owner’s tax bracket. Capital gains earned on assets bought and sold within less than one year are considered short-term. Capital gains earned on assets held for at least one year are considered long-term. Capital gains taxes may be deferred or reduced depending on many factors, including the investment vehicle through which they were earned and how the capital gains are used after they are realized.
Short-term capital gains are taxed as ordinary income. Long-term capital gains are generally taxed at a lower rate than ordinary income, but the tax rates vary. Generally, taxpayers fall into the following tax brackets for capital gains taxes: Taxpayers at or below the 12% marginal income tax bracket will generally pay no long-term capital gains tax. Taxpayers in the 22% - 35% income tax brackets will generally pay a 15% capital gains tax. Taxpayers that fall into the 37% income tax bracket will generally pay 20%.