So what are capital gains and how do they apply to the everyday American?
It’s actually a lot more simple than you might think.
Capital gains are simply how much an asset gains value over time.
For example: Let’s say you buy a baseball card for $1 and you save it, make sure to keep it safe. 30 years go by and now the baseball card you paid $1 for is worth $200. That means your baseball card has gained $199 in value in the time you’ve owned it.
Now, there are two different types of capital gains known as Short-term and Long-term capital gains.
Short-term capital gains describe any asset you hold for less than 1 year.
Long-term capital gains describe any asset you hold for more than 1 year.
If you make capital gains on any asset (comic book) you own you are required to pay capital gains tax. We all know how the government is; If something can be taxed it will be taxed.
Short-term capital gains 10% – 37% tax rates
Long-term capital gains 0% 15% 20% tax rates
For real estate, long-term capital gains are most likely what you will be dealing with.
- Asset – Anything that you own that is worth value (eg. a cell phone, a car, a house)