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 Massachusetts, capital gains are considered taxable income and are subject to both federal and state taxation. The federal government taxes capital gains at different rates depending on whether they are long-term or short-term. Long-term capital gains, from assets held for more than one year, are taxed at reduced rates compared to short-term gains, which are taxed at the individual's ordinary income tax rate. As of the current regulations, the federal long-term capital gains tax rates can range from 0% to 20%, depending on the taxpayer's income level. For Massachusetts state tax purposes, capital gains are divided into short-term gains (for assets held one year or less) taxed at the standard income tax rate of 5%, and long-term gains, which are taxed at different rates depending on the type of asset and the duration of ownership. For example, gains from the sale of collectibles held for more than one year may be taxed at 12%. It's important to note that the sale of a primary residence may qualify for an exclusion from capital gains tax up to a certain limit if the taxpayer meets specific IRS requirements. Taxpayers in Massachusetts should consult with an attorney or tax advisor to understand the specific implications of capital gains tax on their individual circumstances.