Which tax is applied to profits earned from asset sales?

The capital gains tax is the tax applied to profits earned from the sale of assets, such as stocks, bonds, or real estate. When an asset is sold for more than its purchase price, the profit—referred to as a capital gain—becomes subject to this tax. This tax is significant in investment decisions because it influences how individuals and businesses approach buying and selling assets.

Understanding capital gains tax is crucial, as it can vary based on how long the asset was held before sale (short-term vs. long-term gains) and the tax regulations applied to different types of assets. This taxation system is designed to tax the increase in value of investments over time, reflecting the growth in wealth that occurs when an asset is appreciated in value.

The other options do not pertain to taxes on profits from asset sales. Tax loss carryforward relates to losses that can be used to offset future taxable income. Simple and compound interest pertain to the way interest is calculated on loans or investments, not to taxation on asset sales.