Capital gains tax is a tax on income received from the sale of an asset—such as a business, real estate, your home, stocks, bonds, coin collections, and jewelry. Capital gains tax is paid on the financial gain between the amount you paid for (or invested to build) the asset, and the amount for which it is sold.

The rate (percentage) paid as capital gains tax has traditionally been lower than the rate (percentage) paid on income tax. And the Internal Revenue Service (IRS) has traditionally taxed long term gains differently than short term gains—with the distinction based on how long the taxpayer owned or held the asset.

In Arkansas, as in other states, capital gains tax applies to the profit made from the sale of certain assets such as real estate, stocks, and personal property. The tax rate on capital gains can be lower than the regular income tax rate. For federal tax purposes, the IRS distinguishes between short-term and long-term capital gains. Short-term capital gains, which are for assets held for one year or less, are taxed at the same rates as ordinary income. Long-term capital gains, on assets held for more than one year, are taxed at reduced rates, which can vary depending on the taxpayer's income bracket. Arkansas follows the federal tax treatment for capital gains, but it also allows for certain state-specific adjustments and exemptions. For example, Arkansas may offer a partial exemption on capital gains from the sale of certain types of property or investments. Taxpayers in Arkansas must report capital gains on both their federal and state income tax returns, and they should consult with an attorney or tax advisor to understand the specific implications for their individual tax situation.