What is capital gains tax and how does it work?

What is capital gains tax and how does it work?

Capital gains tax is a tax on the profit from the sale of an asset. It applies to investments like stocks, real estate, and other properties.

Are there different rates for short-term and long-term capital gains?

Yes, short-term capital gains (assets held for one year or less) are taxed at ordinary income rates, while long-term gains (held for more than a year) are taxed at reduced rates.

How can I minimize my capital gains tax?

You can minimize capital gains tax by holding investments longer, utilizing tax-loss harvesting, or investing in tax-advantaged accounts.

What are the exemptions for capital gains tax?

Exemptions may include the primary residence exclusion, where you can exclude up to $250,000 ($500,000 for married couples) of gain if you meet certain conditions.

What happens if I don't report my capital gains?

Failing to report capital gains can lead to penalties, interest on unpaid taxes, and potential audits by the IRS.