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 Michigan, as in all states, capital gains are subject to federal capital gains tax regulations. The Internal Revenue Service (IRS) taxes capital gains on the sale of assets such as businesses, real estate, stocks, and other valuable items. The tax rate depends on whether the gain is long-term or short-term. Long-term capital gains, from assets held for more than one year, are taxed at lower rates than short-term gains, which are from assets held for one year or less. These rates are typically lower than the individual income tax rates. Michigan does not have a separate state capital gains tax; instead, capital gains are treated as regular income and taxed at the state's flat income tax rate. Therefore, when a Michigan resident sells an asset and realizes a capital gain, they must report this gain on their federal tax return and it will also be subject to Michigan's state income tax.