Capital Gains Tax is a tax on the profit made from selling certain assets, such as stocks, real estate, or other investments. When you sell an asset for more than you paid for it, the profit is considered a capital gain and is subject to taxation. The rate of this tax can vary based on how long you held the asset before selling it. There are two types of capital gains: short-term and long-term. Short-term capital gains apply to assets held for one year or less and are taxed at ordinary income tax rates. Long-term capital gains apply to assets held for more than one year and are usually taxed at lower rates, encouraging long-term investment.