Capital Gains

Capital Gains

What does Capital Gains mean in American Law?

The definition of Capital Gains in the law of the United States, as defined by the lexicographer Arthur Leff in his legal dictionary is:

For income tax purposes, gain upon the sale of certain property, “capital assets,” chiefly corporate securities and real estate, is taxed at a lower rate than ordinary income, e.g., wages and ordinary business profits. “Long term capital gains,” i.e., gains on property held for more than one year, get particularly generous treatment. This favored tax treatment is generally justified as a way of avoiding the “bunching” of accrued property appreciation (especially in light of persistent inflation, when what would be taxed would not be “real” gain), and as a way to greater investment mobility. While the details of capital gains taxation are very complex (as they must become any time certain income can receive favored tax treatment, thereby producing an incentive to devise ways to convert non-favored income into it), the general rule is simple: If what is sold is a capital asset, one subtracts the basis of the property from its sales price and pays the capital gains tax on the remainder. If the calculation yields a loss, that is ordinarily deducted as a “capital loss.” See also realized gain or loss.


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