Definition
The profit from selling an asset for more than you paid. In the U.S., gains on assets held longer than a year are taxed at lower long-term rates than short-term gains, which are taxed like ordinary income.
Why it matters
The one-year line is one of the tax code's clearest incentives: patience literally lowers the rate. Traders who flip positions in months hand a bigger cut to the IRS than investors who hold.
Example
Shares bought for $5,000 and sold for $8,000 produce a $3,000 capital gain. Sold after 11 months it is taxed like salary; sold after 13 months it qualifies for the lower long-term rate.
Related terms
This definition is educational, not financial, legal, or tax advice. U.S. rules and limits change; verify time-sensitive details with official sources. See our disclaimer.