Capital gains, a fundamental concept in the world of finance, play a significant role in investment returns. They represent the profits earned from selling assets such as stocks, real estate, or other investments. Understanding capital gains and their taxation is essential for investors to make informed financial decisions. Let’s delve into what capital gains are and how they are taxed in the United States. Capital gains are the positive difference between the selling price of an asset and its original purchase price. When you sell an asset for more than what you paid for it, you realize a capital gain. Conversely, if you sell an asset for less than its purchase price, you incur a capital loss. Types of Capital Gains 1. Short-Term Capital Gains These are gains from selling assets that you’ve held for one year or less. They are subject to ordinary income tax rates, which are the same rates used for your regular income. 2. Long-Term Capital Gains Gains from selling assets held for more than one year fall into this category. Long-term capital gains typically receive preferential tax treatment, with lower