What Are Capital Gains Taxes?

Video Transcript

"So what are capital gains taxes? Everybody hears about these things and many people really don't know what they are. And a capital gains tax is really a tax on profit. And if you acquire an asset, if you buy a sharers stock, if you buy a piece of real estate, the price that you buy it at is called your bases. And if you later sell that stock or sell that real estate at a profit, the difference in what you brought it for and what you sold it for, is your profit, the tax law calls that your capital gain. And you pay a capital gain tax based on the amount of profit that you got from that transaction. If you bought this stock at five dollars a share and you sell it at a hundred and five dollars a share, your capital gain is one hundred dollars. That's all capital gains are. Capital gains taxes differ depending on how you got the property. If someone gifted you the property, then you get their basis in the assets. So if mom and dad gift you IBM stock, they had the IBM stock, if they bought the IBM stock at five dollars a share, they may gifted you and it's worth fifty five dollars a share, your basis in that stock is five dollars a share. When ever you sell it, you are going to pay a capital gain tax on the difference between the five dollars that they bought it for, and what ever price you sell it for. When somebody dies, typically the family gets what's called a step up in the basis to capital gains, which means that if mom and dad bought the IBM stock for five dollars and they died and at the date of death it's worth a hundred and five dollars, the new basis of the kids is a hundred and five dollars that they can sell the day after the funeral and not pay any capital gains taxes."