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 Illinois, as in other states, capital gains are taxed as income. This means that any profit realized from the sale of an asset, such as real estate, stocks, or other investments, is subject to state income tax in addition to federal capital gains taxes. The Illinois state income tax rate is a flat rate, which applies to all income regardless of the amount. As of the knowledge cutoff date, this rate is 4.95%. For federal taxes, the IRS taxes short-term capital gains (assets held for one year or less) at the same rates as ordinary income, while long-term capital gains (assets held for more than one year) are taxed at reduced rates, which can vary depending on the taxpayer's income bracket. It's important to note that specific exemptions or deductions may apply, such as the exclusion of gain from the sale of a primary residence up to a certain amount. Taxpayers in Illinois should consult with an attorney or tax advisor to understand how their capital gains will be taxed and to plan accordingly.