Which of the following statements about long-term capital gains is true?

Which of the following statements about long-term capital gains is true?

• A. They are taxed at ordinary income tax rates.
• B. They are not subject to tax if they fall below certain thresholds.
• C. They benefit from a reduced tax rate compared to short-term gains.
• D. They can always be offset by short-term capital losses.

Answer: (C)

Long-term capital gains are indeed taxed at preferential rates compared to short-term capital gains, which are taxed as ordinary income. This significant distinction is designed to encourage long-term investment and hold strategies, as the tax policy favors investors who hold their assets for over a year. Long-term capital gains are typically subject to lower tax brackets, which can be 0%, 15%, or 20%, depending on the individual's taxable income level. This reduction in tax burden serves to incentivize individuals to invest in assets with the expectation that they will appreciate over time, rather than focusing on short-term trading which is taxed more heavily. The other options do not accurately capture the nuances of long-term capital gains taxation. For example, while there are specific thresholds below which certain capital gains may not be taxed, this does not apply universally to all long-term gains, and the notion of offsetting losses involves more intricate calculations and rules. Thus, recognizing that long-term capital gains benefit from a reduced tax rate compared to short-term gains is an essential concept in tax planning for investors.

Long-term capital gains are indeed taxed at preferential rates compared to short-term capital gains, which are taxed as ordinary income. This significant distinction is designed to encourage long-term investment and hold strategies, as the tax policy favors investors who hold their assets for over a year.

Long-term capital gains are typically subject to lower tax brackets, which can be 0%, 15%, or 20%, depending on the individual's taxable income level. This reduction in tax burden serves to incentivize individuals to invest in assets with the expectation that they will appreciate over time, rather than focusing on short-term trading which is taxed more heavily.

The other options do not accurately capture the nuances of long-term capital gains taxation. For example, while there are specific thresholds below which certain capital gains may not be taxed, this does not apply universally to all long-term gains, and the notion of offsetting losses involves more intricate calculations and rules. Thus, recognizing that long-term capital gains benefit from a reduced tax rate compared to short-term gains is an essential concept in tax planning for investors.