The Basics of Capital Gains and Losses
If you don't know much about capital gains and losses, you may want to read up on them, because they can greatly affect your taxes.
Here's some basic information about them.
Almost everything you own, whether for personal purposes, investment, or luxury, is a capital asset.
When selling a capital asset, the difference between what you paid for it (its basis) and what you sold it for is a capital gain or capital loss.
You must report all these gains to the IRS.
You can only deduct capital losses from investment property.
You cannot deduct capital losses from items held for personal use.
Capital gains and losses are categorized as short-term or long-term.
Their categorization depends upon how long you have held the property before selling it.
Short-term is used to refer to gains or losses you have held for the period of one year or less.
Long-term refers to gains or losses that you have held for more than one year.
You have a net capital gain when your net long-term gains exceed your net long-term losses.
This applies as long as your net long-term gain exceeds your net short-term losses, if any.
The tax rate applied to such gain is usually lower than the tax rate applied to other income.
For 2009, the maximum tax rate for it is 15%.
For low-income individuals, the net capital gain tax rate can be as low as zero.
Particular types of gains can be taxed at 25 to 28%.
If your capital losses are greater than your capital gains, the difference can be deducted on your income tax up to $3000 annually or $1500, if you are married filing separately.
This difference can be used to lower your income from other sources.
If your total net capital loss exceeds the annual limit for capital losses, you can carry the difference over to the following year.
Capital gains and losses are reported on Schedule D and then transferred to line 13 of Internal Revenue Service Form 1040.
Here's some basic information about them.
Almost everything you own, whether for personal purposes, investment, or luxury, is a capital asset.
When selling a capital asset, the difference between what you paid for it (its basis) and what you sold it for is a capital gain or capital loss.
You must report all these gains to the IRS.
You can only deduct capital losses from investment property.
You cannot deduct capital losses from items held for personal use.
Capital gains and losses are categorized as short-term or long-term.
Their categorization depends upon how long you have held the property before selling it.
Short-term is used to refer to gains or losses you have held for the period of one year or less.
Long-term refers to gains or losses that you have held for more than one year.
You have a net capital gain when your net long-term gains exceed your net long-term losses.
This applies as long as your net long-term gain exceeds your net short-term losses, if any.
The tax rate applied to such gain is usually lower than the tax rate applied to other income.
For 2009, the maximum tax rate for it is 15%.
For low-income individuals, the net capital gain tax rate can be as low as zero.
Particular types of gains can be taxed at 25 to 28%.
If your capital losses are greater than your capital gains, the difference can be deducted on your income tax up to $3000 annually or $1500, if you are married filing separately.
This difference can be used to lower your income from other sources.
If your total net capital loss exceeds the annual limit for capital losses, you can carry the difference over to the following year.
Capital gains and losses are reported on Schedule D and then transferred to line 13 of Internal Revenue Service Form 1040.