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 Hawaii, capital gains tax is applied to the profit made from the sale of certain assets such as real estate, stocks, and other valuable items. The state conforms to federal tax law for the definition of capital gains, but it applies its own state-level tax rates. As of the current regulations, Hawaii taxes capital gains at a rate that is generally lower than its regular income tax rates. The state recognizes the difference between short-term and long-term capital gains, similar to federal law, where short-term gains (for assets held for one year or less) are taxed at a higher rate compared to long-term gains (for assets held for more than one year). It's important to note that specific exemptions and tax treatments may apply, such as the exclusion of gains from the sale of a primary residence up to a certain amount, if the taxpayer meets the eligibility criteria. Taxpayers in Hawaii must report capital gains on their state tax return, and they may also be subject to federal capital gains taxes, which are administered by the IRS. The federal tax rates for capital gains can vary based on the taxpayer's income level and the duration the asset was held.