A capital gain is the difference between the sales price and the purchase price of an asset. Under current law, this gain is taxed at the same tax rate as ordinary income. Although the tax code is indexed to prevent recipients of ordinary income from being pushed into higher tax brackets by the effects of inflation, there is no similar protection for people who hold assets for several years. An investor who holds an asset which has increased in value with the rate of inflation is no better or worse off in real terms.
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