Capital Gains
Profit from selling an asset for more than its purchase price.
Capital gains are the profit realized when a capital asset (stocks, real estate, business equipment) is sold for more than its purchase price. Short-term capital gains (assets held under one year) are taxed at ordinary income rates, while long-term gains (held over one year) qualify for preferential rates of 0%, 15%, or 20% depending on income.
Formula
Capital Gain = Sale Price − Purchase Price (Cost Basis)Example
A business owner sells a commercial property purchased for $200,000 at a price of $310,000, realizing a $110,000 long-term capital gain taxed at the preferential rate.
Why It Matters for Your Business
Understanding the difference between short-term and long-term capital gains helps you time asset sales strategically to minimize your tax bill.
Related Terms
More Taxes Terms
Adjusted Gross Income
Gross income minus specific deductions like retirement contributions.
Tax Audit
An examination of tax returns by the IRS to verify accuracy.
Capital Loss
Loss from selling an asset for less than its purchase price.
Tax Deduction
An expense that reduces taxable income.
Estimated Taxes
Quarterly tax payments made by self-employed individuals and businesses.
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