Capital gains tax is what you owe on the profit from selling investments like stocks, bonds, or real estate. If you buy a stock for $1,000 and sell it for $1,500, you have a $500 capital gain that may be subject to tax.

The tax rate depends on your overall taxable income, your filing status, and how long you held the investment. Short-term gains (held less than a year) are taxed as ordinary income, while long-term gains typically get preferential tax rates. This tax structure encourages long-term investing over frequent trading. You only owe capital gains tax when you actually sell—profits on paper don't trigger taxes. Losses from the sale of one asset can be used to offset the gains of another asset. Strategic timing of sales can help manage your tax burden while supporting your investment goals.