Definition of capital gains tax

tax on profits from the sale of capital assets, Traditionally, the tax law specified a minimum holding period after which a capital gain is taxed at a more favorable rate (recently, a maximum of 15% for individuals) than ordinary income. A long-term capital gain is achieved once an asset such as a stock, bond, or mutual fund is held for more than 12 months. Such long-term gains are taxed at a maximum rate of 15% for taxpayers. Those in the 15% tax bracket pay a 5% tax on long-term capital gains. Assets sold for a profit after having been held for 12 months or less generate short-term capital gains, which are subject to ordinary income tax rates. Assets purchased starting January 1, 2000 and held for more than five years qualify for a maximum capital gains tax rate of 8%.