Capital gains tax is a form of taxation levied on income received as a result of selling an asset, whether this is a share of stocks, bonds, or real estate. The tax levied depends on the number of years that have elapsed in possessing the asset to sell it. This is called the holding period whereby it is referring to the length of time between buying an asset and selling it, and thus varies the percent at which your gains are taxed.
i.) Other types of Short-Term Capital Gains: In cases where you sell a property or asset within one year, the profit earned will be categorized under short-term capital gain. Such profits are treated under your ordinary income tax rate. In America, this rate ranges from 10% to 37% depending on the total taxable income.
ii.) Long-term capital gains: A long-term capital gain will result if you have had an asset for over one year. Long-term capital gains enjoy preferred tax rates. These rates can be 0%, 15%, or 20%, based on your taxable income. In addition, those with higher incomes also might owe an additional 3.8% NIIT.
Example: You buy a stock at $5,000 and sell it after a year for $7,000. So, the $2,000 gain is capitalized. And in more than a year, it is taxed with lower rates than ordinary income.