Capital Gains

The profit earned from the sale of property that is held for more than one year. A tax on the profit earned from the sale of a capital asset.

See Also

Allocation of purchase price, ordinary income tax.

Tips

Capital gains taxes have historically been much lower than ordinary income taxes in the U.S. When selling a business, the seller usually owes a mix of capital gains and ordinary income taxes that primarily depend on how the purchase price is allocated. The seller usually attempts to allocate as much value to assets that are subject to capital gains tax rates when allocating the purchase price.