Capital Gains Tax

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Definition of 'Capital Gains Tax'

Capital gains tax is a tax on the profit made from the sale of a capital asset, such as stocks, bonds, real estate, or other investments. Capital gains are calculated by subtracting the purchase price of the asset from the selling price. If the selling price is higher than the purchase price, the difference is the capital gain.

Capital gains tax is usually calculated as a percentage of the capital gain, and the rate of the tax can vary depending on the type of asset, the length of time the asset was held, and the tax laws in the jurisdiction where the sale took place.

In some cases, capital gains can be offset by capital losses, which occur when the selling price of an asset is lower than the purchase price. Capital losses can be used to offset capital gains, reducing or eliminating the amount of tax owed on the gain.

Capital gains tax is an important consideration for investors and anyone who sells capital assets, as it can have a significant impact on their overall investment returns. It's important to understand the tax implications of any investment decisions and to consult with a tax professional if necessary.

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