When you sell a capital asset, the sale normally results in a capital
gain or loss. A capital asset includes most property you own for personal use
or own as an investment. Here are facts that you should know about capital
gains and losses:
1. Capital Assets. Capital assets
include property such as your home or car, as well as investment property, such
as stocks and bonds.
2. Gains and Losses. A capital
gain or loss is the difference between your basis and the amount you get when
you sell an asset. Your basis is usually what you paid for the asset.
3. Net Investment Income Tax. You
must include all capital gains in your income and you may be subject to the Net
Investment Income Tax if your income is above certain amounts. The rate of this
tax is 3.8 percent.
4. Deductible Losses. You can
deduct capital losses on the sale of investment property. You cannot deduct
losses on the sale of property that you hold for personal use.
5. Limit on Losses. If your
capital losses are more than your capital gains, you can deduct the difference
as a loss on your tax return. This loss is limited to $3,000 per year, or
$1,500 if you are married and file a separate return.
6. Carryover Losses. If your
total net capital loss is more than the limit you can deduct, you can carry it
over to next year’s tax return.
7. Long and Short Term. Capital
gains and losses are treated as either long-term or short-term, depending on
how long you held the property. If you held it for one year or less, the gain
or loss is short-term.
8. Net Capital Gain. If your
long-term gains are more than your long-term losses, the difference between the
two is a net long-term capital gain. If your net long-term capital gain is more
than your net short-term capital loss, you have a net capital gain.
9. Tax Rate. The tax rate on a
net capital gain usually depends on your income. The maximum tax rate on a net
capital gain is 20 percent. However, for most taxpayers a zero or 15 percent
rate will apply. A 25 or 28 percent tax rate can also apply to certain types of
net capital gain.
If you would like any additional information please feel free to contact
me.
Amare
Berhie, Senior Tax Accountant
(651)
300-4777, (612)424-1540, (651) 621-5777
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