Do you have Capital Gains or Capital Losses, what’s taxable?
Capital Gains and Losses are recognized when you sell or dispose of an asset (property, stock, bonds, other securities, collectables, etc.) Here are some facts you should know about capital gains and losses.
• When you sell a capital asset, you should know the original price. It also referred to as “basis”. The difference between the amounts you sold it for and your basis is the capital gain or capital loss. So let’s say you purchased a stock XYZ for $25 (basis) and sold it for $45, you now have $20 of capital gain ($45-$25)
• If it’s an investment related asset (like a Real Estate that you rent out), you may only deduct capital losses on investment property. So if you had investment capital loses, you will not be able to deduct it on property held for personal use.
• Depending on how long you held the asset before the sale, you might have a short-term or a long-term capital gain or loss. If you hold the asset for more than one year, your capital gain or loss is a long-term and contrary, if you held it one year or less, your capital gain or loss is a short-term.
• You pay different taxes on capital gains. If it’s a short-term capital gain, your marginal tax rate (your current tax bracket) is used to calculate the tax. If it’s a long-term capital gain, then different rates apply; from 0% to 20% and in some cases the tax rate can be as high as 28%. For 2009, the maximum capital gains rate for most people is15%. For lower-income individuals, the rate may be 0% on some or all of the net capital gains.
• If your personal capital losses are over your capital gains (net capital loss), the excess can be deducted on your individual income tax return form 1040. Use Schedule D to report your transactions. Note that you can only deduct the maximum annual limit of $3,000 for married couple filing jointly or $1,500 if you are individual or married filing separately. For example, if your net capital loss for this year is $30K and you are single, you can only deduct $1,500 this year and the rest of the losses of $28,500 are carried forward to the next year.
• Publication 550, Investment Income and Expenses
• Publication 544, Sales and Other Dispositions of Assets
• Publication 527, Residential Rental Property (Including Rental of Vacation Homes)
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