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The profit realized when an asset is sold for more than its purchase price.
Capital gains are classified as short-term (held one year or less) or long-term (held more than one year). In the U.S., long-term capital gains are taxed at preferential rates of 0%, 15%, or 20% depending on income, while short-term gains are taxed as ordinary income, which can be as high as 37%. This tax differential is a major reason financial advisors recommend holding investments for at least one year. Unrealized capital gains (paper profits) are not taxed until the position is sold.