what is capital gains tax

Capital gains tax is a tax on the profit realized on the sale of a non-inventory asset, such as stocks, bonds, precious metals, real estate, and property. The tax is levied on the difference between the sale price and the acquisition price of the asset. Capital gains taxes are progressive, similar to income taxes, and are paid when an investment is sold for a profit. The tax rate depends on the holding term and the taxpayers income level, and it is subject to different rates. The capital gains tax rate is 0%, 15%, or 20%, depending on the taxable income for the year. The tax is generally exempt for capital gains realized on the disposal of business assets (including real estate) and on the disposal of other assets that qualify as income from independently performed activities. However, if the transaction(s) exceed(s) normal asset management, the capital gain is treated as income from other activities or even business income. Capital gains taxes are reported on a Schedule D form.