For people earning income from investments above certain annual thresholds, the net investment income tax comes into play.
This difference in tax treatment is one of the advantages a "buy-and-hold" investment strategy has over a strategy that involves frequent buying and selling, as in day trading. The single biggest asset many people have is their home, and depending on the real estate market, a homeowner might realize a huge capital gain on a sale.

There is no capital gain until you sell an asset, but once you’ve sold an asset for a gain, you’re required to claim it on your income taxes. How much your gain is taxed depends on how long you owned the asset before selling. The “basis” is what you paid for the asset, plus commissions and … If you sell something for less than its basis, you have a capital loss. People in the lowest tax brackets usually don't have to pay any tax on long-term capital gains. If you realize long-term capital gains from the sale of collectibles, such as precious metals, coins or art, they are taxed at a maximum rate of 28%. To the best of our knowledge, all content is accurate as of the date posted, though offers contained herein may no longer be available. If you sell an asset after owning it for more than a year, any gain you have is a "long-term" capital gain. You’ll owe either 0%, 15% or 20% on gains from the sale of most assets or investments held for more than one year, depending on your annual taxable income (for more on how to calculate your long-term capital gains tax, see below). Individuals, estates and trusts with income above specified levels own this tax on their net investment income. To help support our reporting work, and to continue our ability to provide this content for free to our readers, we receive compensation from the companies that advertise on the Forbes Advisor site. Anyone who sells a capital asset should know that capital gains tax may apply. Long-term capital gains are taxed at lower rates than ordinary income, and how much you owe depends on your annual taxable income.
The difference between them is business income, subject to employment taxes. If you sell something for more than your "basis" in the item, then the difference is a capital gain, and you’ll need to report that gain on your taxes. Do this in a businesslike manner and with the intention of making a profit, and the IRS will view it as a business. Guide to Short-term vs Long-term Capital Gains Taxes (Brokerage Accounts, etc. The “basis” is what you paid for the asset, plus commissions and the cost of improvements, minus depreciation. Auto-Pay.

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