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 Tennessee, there is no state-level capital gains tax; residents only pay the federal capital gains tax on income from the sale of assets. The federal tax treatment of capital gains depends on whether they are considered 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 federal tax law, long-term capital gains rates can range from 0% to 20%, depending on the taxpayer's income, while short-term gains are taxed at rates up to 37%. It's important to note that specific rules can apply, such as the exclusion of gain from the sale of a primary residence up to a certain amount, and taxpayers should consult with an attorney or tax specialist for advice on their particular situation.