Capital Gains Taxes - A Definition

All You Need To Know - And More!

July 25, 2004
Bogdan Voicu

Capital Gains Taxes are income taxes that are charged on the net capital gain (the profit created by selling an asset that has been previously bought at a lower price).

Most common, the Capital Gains Tax is paid upon selling stocks, bonds or property.

In the United States, both individuals and corporations pay the CGT, but the rates decreases in time, for the so-called "long-term capital gains". These are gains on assets that are being sold after being held for more than a year. This way, the CGT is a lot smaller. More, for those in the lowest two income tax brackets, the rate is a lot lower. Those that keep assets for less than a year pay a higher tax, the ordinary income tax, actually.

The income tax brackets are nothing more then categories of people by their annual income. Analyzing their income, the federal government established tax rates. This way, those with a higher income pay higher taxes as they earn more.

In order to calculate taxes it is used a technique known as "cost based". This way, it is not only the selling price that influences tax; the cost also has something to say. The purchasing cost isn't actually accurate to describe the cost of the asset: the additional improvements, investments or paid taxes regarding the asset influence the total cost used at computing CGT.

Actually, there are CGT calculators all over the Internet that would help you calculate your tax to pay, but you should first know the rates that you should pay. These are the two required elements to find out just how much will go to the Federal Government.