{"id":353976,"date":"2016-04-04T01:48:06","date_gmt":"2016-04-04T06:48:06","guid":{"rendered":"https:\/\/content.findlaw-admin.com\/ability-law\/tax\/federal-taxes\/what-are-capital-gains.html"},"modified":"2025-09-17T11:26:44","modified_gmt":"2025-09-17T16:26:44","slug":"what-are-capital-gains","status":"publish","type":"page","link":"https:\/\/www.findlaw.com\/tax\/federal-taxes\/what-are-capital-gains.html","title":{"rendered":"What Are Capital Gains?"},"content":{"rendered":"\n
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What Are Capital Gains?<\/h1>\n\n
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\n By FindLaw Staff<\/a> | Legally reviewed by Catherine Hodder, Esq.<\/a>\n | Last updated\n
\n \n <\/i>\n Legally Reviewed\n <\/summary>\n\n
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This article has been written and reviewed for legal accuracy, clarity, and style by FindLaw\u2019s team of legal writers and attorneys<\/a> and in accordance with our editorial standards<\/a>.<\/em><\/p>\n\n <\/div>\n <\/details>\n\n

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The last updated date refers to the last time this article was reviewed by FindLaw or one of our contributing authors<\/a>. We make every effort to keep our articles updated. For information regarding a specific legal issue affecting you, please contact an attorney in your area<\/a>.<\/em><\/p>\n\n <\/div>\n <\/details>\n<\/section>\n\n\n

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The capital gains tax is what you pay on the profits from the sale of assets you have owned for at least one year. Capital gains are included in your taxable income<\/span>, but are generally taxed at a lower rate<\/span> than regular income<\/span> to encourage long-term investment in the U.S. economy.<\/p>\n\n <\/div>\n\n\n\n

The profits from selling assets not owned for the one-year holding period<\/span> are known as short-term capital gains<\/span>. There is no short-term capital gains<\/span> tax<\/span>, so the Internal Revenue Service<\/span> (IRS<\/span>) includes profits from the sale of assets held for less than a year in your gross income<\/span> for income <\/span>tax<\/span><\/strong><\/a> purposes<\/span>.<\/p>\n

For high-income taxpayers<\/span>, ordinary income<\/span> is taxed at a higher rate<\/span> than capital gains, which makes it to their benefit to get as much income as possible classified as capital gains. To help do that, tax advisors<\/span> often encourage clients to hold assets for longer than one year before selling to reduce their tax bills<\/span>.<\/p>\n

Key Takeaways<\/strong><\/h2>\n