What Is The Capital Gains Tax? - Where and How Much?

Capital Gains Tax Rates

August 30, 2004
By Niles Brohey

So what is the capital gains tax? Simply put capital gains taxes are taxes on the sale or exchange of capital assets – such as real estate, shares, businesses, or property. The capital gains tax is levied on any profits that are realized from selling these capital assets. Note that being a gain tax it only applies to capital asset exchanges which accrue a profit to you. So if you buy real estate for $400,000 and sell for $300,000 no tax is charged, however if the selling price was $500,000 tax then would be charged, since a capital gain was made

Capital gains tax is not charged at a flat rate, the rate depends on a multitude of factors. There are three main factors determining the tax rate applicable to you – the tax band you occupy, how long you have had the asset on which the tax is being charged, and what the nature of the asset is (investment, collectible or real estate). So by balancing how long you hold onto the asset you can influence the rate charged on gains from its sale.

In the USA assets held for one year or less are eligible for capital gains tax as the same rate as ones income tax. Gains resulting from capital transactions on assets held for longer periods are taxed at lower rates which, depending on your income, vary from 5% to 15%. However, an automatic 28% rate is applied to any capital gain accrued from the sale of collectibles and a 25% rate is applied to any gain from the sale of real estate. Different types of investments have different rates which overthrow the income based rates however, for example the sale of collectibles accrues a tax rate of 28% and real estate sales result in a rate of 25%.