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Simple English definitions for legal terms
short-term capital gain
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A quick definition of short-term capital gain:
A short-term capital gain is when you make a profit by selling something, like a stock or land, that you've owned for less than a year. This profit is treated like regular income and is taxed accordingly. It's different from a long-term capital gain, which is when you make a profit by selling something you've owned for more than a year. Short-term capital gains are taxed at a higher rate than long-term capital gains.
A more thorough explanation:
A short-term capital gain is the profit made when a capital asset is sold or exchanged within a period of one year or less. This type of gain is treated as ordinary income under current federal tax law.
For example, if you buy a stock for $100 and sell it for $120 within six months, the $20 profit you made is considered a short-term capital gain. You will have to pay taxes on this gain at the same rate as your regular income.
Another example is if you sell a piece of property that you have owned for eight months and make a profit of $10,000. This profit is also considered a short-term capital gain and will be taxed as ordinary income.
Short-term capital gains are different from long-term capital gains, which are profits made from selling or exchanging a capital asset that has been held for more than one year. Long-term capital gains are taxed at a lower rate than short-term gains.