Almost everything that is owned for personal or investment purposes is a capital asset; therefore, income from the sale of such assets counts as capital gains, according to the IRS. Examples of capital assets include household furnishings, a home, and bonds or stocks held as investments.
The difference between what one sells a capital asset for and its basis (typically the amount for which it was purchased) is a capital gain or loss, explains the IRS. Capital gains must be reported on income tax returns. Capital gains and losses are classified as short term or long term depending on the length of time the asset was owned. If held more than one year, it is a long-term capital gain or loss, and if held less than a year, it is a short-term capital gain or loss. Tax rates applied to capital gains are typically lower than tax rates applied to other income.