A capital gain is a profit that is made from a sale of a non-inventory asset, such as stock, bond or real estate. The capital gain is where the sale price exceeds the purchase price which further results in profit. The gain, in this case, is the difference between a higher selling price and a lower purchase price. Capital gains can also be a result of a different form of profit received from an asset which refers to investment income. The investment income is the cash flow or passive income that is about real assets, such as property; financial assets such as shares/stocks or bonds; and intangible assets.

Whenever an individual makes money on investment, they owe a share to the IRS. The capital gain tax rate determines the share that an individual owes the IRS.

The capital gain tax rate depends on the tax bracket an investor falls under as well as the amount of time the investment was held. The investment time may be:

• Short-term capital gains
  These are applied to investments held for a year or less before being sold. The investments are taxed at the investor’s ordinary income tax rate, in other words, it is taxed like the same way a regular paycheck is taxed. The tax rate varies for single individuals and for married couples who file a joint return. For example, Single Filer Tax Bracket/Short-Term Capital Gains Tax Rate of 10% for an individual whose income is between $0-$9,325. Married Filer Tax Bracket/Short-Term Capital Gains Tax Rate of 10% for a couple filing a joint return whose income is between $0-$18,650.
• Long-term capital gains
  These are applied to any investment held for a year and a day or longer. The investor is taxed, based on the individual’s income level and tax bracket. In the current scenario, the majority of tax filers are subjected to a 15% capital gains tax rates. The highest earners of the country are subjected to a 20% tax rate. Whereas, lower earners do not pay any taxes on long-term capital gains. Currently, there are seven brackets a taxpayer can fall under. However, the current President of the USA wants to reduce the present number of brackets to just three. This change may not affect some of the taxpayers. The higher earners might see their long-term capital gains tax rates go up from 15% to 20%. For example: In the current scenario, a couple filing a joint return earning $240,000 would fall into the 28% tax bracket, and therefore would be subject to a capital gains tax rate of 15%. If the new plan takes shape, that couple would now fall into a higher tax bracket and also get hit with a capital gains tax rate of 20%.

However, the profit on an investment pushes an individual into a higher bracket; then there could possibly be taxation at a combination of rates. The individual would face yet another rate depending on the type of property being sold.

• Zero capital gains for some individuals: Taxpayers who fall under the 10 and 15% brackets end up without any capital gains tax bill at all.

However, this was not the case always. Before 2008, these taxpayers had to pay five% of their capital gains. Now they are exempted from capital gains taxes.

• 15% capital gains tax rates for most
  This applies to taxpayers in the 25-35% tax brackets as well as to some dividends, stocks and mutual funds of the account holders.
• 20% rate for high earners
  This is for the wealthier taxpayers, and it also applies to qualified dividends. This higher rate comes into play when an individual’s adjusted gross income falls into the top 39.6% tax bracket.
• 25% capital gains rate
  There are a couple of other categories of capital gains taxes that come into play for some investors. A 25% rate applies to part of the gain from selling real estate an individual depreciated. Basically, what this does is, it keeps the individual from getting a double tax break. The IRS wants to recover some of the tax breaks an individual has been getting via depreciation throughout the years on assets through what is known as Section 1250 property.
• 28% capital gains rate
  Only two categories of capital gains are subject to this, and that is small business stocks and collectibles.

If an individual realized a gain from qualified small-business stock that was held more than five years, one could generally exclude one-half of the gain from income. The remainder is taxed at a 28% rate. An individual can get the specifics on gains on qualified small-business stock in IRS Publication 550.

If the gains came from collectibles rather than a business sale, an individual will also pay the 28% rate. This includes proceeds from the sale of:

• A work of art
• Antiques
• Gems
• Stamps
• Coins
• Precious metals
• Wine or brandy collections