Capital gains tax is a tax imposed on the profit made from selling an asset, 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 main types of capital gains: short-term capital gains and long-term capital gains. Short-term gains apply to assets held for one year or less and are taxed at ordinary income tax rates. Long-term gains, for assets held longer than a year, typically enjoy lower tax rates, encouraging long-term investment.