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 Rhode Island, as in other states, capital gains tax applies to the profit made from the sale of non-inventory assets when the sale price exceeds the purchase price. The tax treatment of capital gains is determined by both federal and state law. At the federal level, the IRS taxes short-term capital gains (assets held for one year or less) as ordinary income, which can be taxed at higher rates, while long-term capital gains (assets held for more than one year) are taxed at reduced rates, which are typically lower than the ordinary income tax rates. Rhode Island conforms to the federal treatment of capital gains, meaning that the state taxes capital gains as income. Therefore, the capital gains are subject to Rhode Island's state income tax rates, which vary depending on the taxpayer's income bracket. It's important to note that there may be exemptions or special considerations for certain types of assets, such as the sale of a primary residence, where individuals may exclude a portion of the capital gains from their income under certain conditions.