There are multiple rates of capital gain taxes. The capital gains tax rate depends on the tax bracket for ordinary income in which the taxpayer concerned is placed and his period of holding of the investment or capital asset before sale.
Excess of sale price of the asset over and above its cost is long term capital gains. To arrive at the cost of the asset sold, ordinary purchase price is adjusted for further improvements and depreciation.
Long term capital gains can arise on the sale of assets held by the seller for at least 366 days (more than a year) before sale. Short term capital gains may arise on sale of assets held for less than a year.
Long term capital gains, which arise on sale of assets held for more than one year, are taxed at a lower rate than short term capital gains. Tax rate on long term capital gain is usually much lower than tax levy on regular or ordinary income. Short term capital gains suffer taxes at the same rate as ordinary income, which could be as high as 35%. There are higher or special rates of long term capital gains on a variety of capital goods like small business stocks or collectables (antiques).
A taxpayer enjoys exemption up to $ 2, 50,000 (5, 00,000 for a married couple filing joint return of income) of long term capital gains from the sale of real property used as primary residence for at least 2 years out of 5 years before the date of sale. The 2 years of residency need not be continuous or uninterrupted.
Capital losses incurred are set off against capital gains for the year.
Capital gain which is taxed is not inflation adjusted or indexed. As a result paper profits, arising on sale of capital assets wholly and solely due to inflation, also suffer capital gains tax.
(More:http://www.irs.gov/newsroom/article/0,,id=106799,00.html
http://www.irs.gov/taxtopics/tc409.html
http://www.cato.org/pub_display.php?pub_id=1101)
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