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The capital gains tax is the levy on the profit from an investment that is incurred when the investment is sold.
When stock shares or any other taxable investment assets are sold, the capital gains, or profits, are referred to as having been "realized." The tax doesn't apply to unsold investments or "unrealized capital gains." Stock shares will not incur taxes until they are sold, no matter how long the shares are held or how much they increase in value.
Under current U.S. federal tax policy, the capital gains tax rate applies only to profits from the sale of assets held for more than a year, referred to as "long-term capital gains." The current rates are 0%, 15%, or 20%, depending on the taxpayer's tax bracket for that year.
Short-term capital gains tax applies to assets that are sold one year or less from the date they were purchased. This profit is taxed as ordinary income. For all but the wealthiest taxpayers, that is a higher tax rate than the capital gains rate.
