Capital gains are the profits made from the sale of an investment or asset. Understanding the different types of capital gains, how they are taxed, and strategies to minimize taxes on capital gains is essential for making informed investment recommendations and strategies.
Which of the following is considered a long-term capital gain?
Not Correct
Correct!
Select an option above to see an explanation here.
A) A gain on a stock held for 8 months is considered a short-term capital gain. B) A gain on a stock held for 14 months is considered a long-term capital gain. C) A gain on a bond held for 6 months is considered a short-term capital gain. D) A gain on a mutual fund held for 11 months is considered a short-term capital gain.
What is the primary difference between short-term and long-term capital gains?
A) The type of asset sold does not determine whether a gain is short-term or long-term. B) The asset's holding period affects whether a gain is short-term or long-term, but the primary difference is the tax rate applied. C) The amount of the gain does not determine whether it is short-term or long-term. D) The primary difference between short-term and long-term capital gains is the tax rate applied to the gain.
Which of the following is NOT a capital asset?
A) A personal residence is considered a capital asset. B) A corporate bond is considered a capital asset. C) A mutual fund is considered a capital asset. D) A salary from employment is not considered a capital asset; it is earned income.
In 1997, the Taxpayer Relief Act was passed, which reduced the maximum long-term capital gains tax rate from 28% to 20%. This change encouraged investors to hold onto their investments for longer periods, as they would be subject to lower tax rates on their gains.
Become a Pro Member to see more questions
Example Series 65 Example Practice Question
An investor purchases 100 shares of a stock for $10 per share, for a total cost basis of $1,000. Two years later, the investor sells the shares for $15 per share, for $1,500. The investor has a long-term capital gain of $500 ($1,500 - $1,000), which will be taxed at the lower long-term capital gains tax rate.
- Holding period: The length of time an asset is held before being sold determines whether it is considered a short-term or long-term capital gain. - Tax rates: Short-term capital gains are taxed at the individual's ordinary income tax rate, while long-term capital gains are taxed at a lower rate, depending on the individual's income level.
- Holding period example: If an investor sells a stock after holding it for under a year, the gain is considered short-term. The gain is considered long-term if the investor sells the stock after holding it for more than a year.