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 New Jersey, as in other states, capital gains are taxed as income. This means that when a resident sells an asset like real estate, stocks, or other investments, the profit made from the sale is subject to state income tax. New Jersey does not have a separate capital gains tax rate; instead, capital gains are taxed at the same rate as ordinary income. As of the current tax laws, these rates can range from 1.4% to 10.75%, depending on the taxpayer's income bracket. Additionally, the federal government taxes capital gains, with the rate depending on the length of time the asset was held. Short-term capital gains, for assets held for one year or less, are taxed at ordinary income tax rates, while long-term capital gains, for assets held for more than one year, are taxed at reduced rates, which can be 0%, 15%, or 20% for most assets. It's important to note that there are certain exclusions and exemptions, such as the exclusion of up to $250,000 ($500,000 for married couples filing jointly) on the capital gain from the sale of a primary residence, subject to specific qualifying conditions.