What is Capital Gains Tax?

Capital Gains Tax

A capital gain is the profit that is made when the investment you have or the items you have purchased are sold for more than your initial investment or purchase price. Just about anything that you have bought, whether it is for personal use or for investment, is subject to capital gains tax, if you sell it for a profit. A capital gains tax is normally a tax of the profit you made on the sale of things like real estate or stocks and bonds.

Capital losses is the loss of any money, through it's eventual sale and can in most cases be deducted or offset any capital gains on your taxes. To qualify, the capital losses are only losses on types of investments and not on personal things you have sold for a loss.

Basically capital gains are differentiated by length of time and the tax rate varies accordingly. Long term capital gains are any ownership of anything you purchase such as real estate, stocks or bonds and you own it for over a year, before you sell it. Long term capital gains usually have a lower tax rate to encourage investment. Short term capital gains are gains in profit from the sale of investments like stocks, bonds or real estate and even personal items and you have owned them for less than a year.




The the Small Business Jobs Act

The capital gains derived from buying stock in some new small companies or new businesses may qualify for 100% exclusion from capital gains taxes. This is meant to be an encouragement for the creation of new business and new jobs. The business has to qualify or be eligible and you have to have bought the stock before certain dates and held on to it for at least five years. This act makes buying stock from a new company a great way to avoid paying capital gains taxes and help in the recovery of the economy by investing in new companies that create new jobs. You can find out more about tax provisions regarding capital gains on new companies here.