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Simple English definitions for legal terms
capital gains
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A quick definition of capital gains:
Capital gains are profits you make when you sell something you own, like a house or stocks. If you sell it for more than you paid for it, that's a capital gain. If you sell it for less, that's a capital loss. You have to pay taxes on your capital gains, but the amount you pay depends on how long you owned the thing you sold. If you owned it for more than a year, you pay less taxes than if you owned it for less than a year.
A more thorough explanation:
Capital gains refer to the profits earned from selling capital assets. A capital asset is anything that someone owns and uses for personal or investment purposes, such as a home, car, or stocks. When you sell a capital asset, the difference between the cost of the asset and the amount you received from the sale is either a capital gain or a capital loss.
For example, if you bought a stock for $10 and sold it for $15, your capital gain would be $5. If you sold the stock for $8, your capital loss would be $2.
There are two types of capital gains: short-term and long-term. If you held the asset for one year or less, it is considered a short-term capital gain. If you held the asset for more than one year, it is considered a long-term capital gain.
Capital gains are subject to income tax. The tax rate on capital gains depends on whether they are short-term or long-term. As of August 2022, the tax rate on most net capital gain is 15% for most individuals.
For example, if you bought a house for $200,000 and sold it for $300,000 after owning it for three years, your capital gain would be $100,000. If you are in the 15% tax bracket and the gain is long-term, you would owe $15,000 in taxes on the gain.