5.1.1. Capital Gains and Losses
The tax term for a profit made by selling an investment is a capital gain. The term comes from the fact that the money someone put into an investment, or capital, experienced an increase (gain) in its value compared to its purchase price.
Capital gains are a very favorable form of investment earnings and are taxed at a lower rate than ordinary earned income (wages, business income, etc.). In fact, some investors pay nearly twice as high a tax rate on their ordinary income bucket as they do on their capital gains bucket.
If the client held the security for one year or less, the IRS will consider the gain/loss to be short-term, and if the client held the security for over one year, the IRS will consider the gain/loss to be long-term.