Capital Gains and What to Report to the IRS

Tax Act

Capital Gains and What to Report to the IRS

Capital Gains and Losses are the result of holding capital assets for investment or for personal use. Capital Assets held for investment result in a capital gain or loss when sold compared to their basis, or what you purchase the asset for. Capital Assets held for personal use can only create a capital gain. All capital gains must be reported to the IRS.

Long term capital gains are better as their tax rate is generally lower than short term capital gains. The classification of a capital gain or loss is determined by a period of one year. Long term capital gains can be offset by long term capital losses, resulting in no taxes being owed or up to a $3,000 reduction in other outstanding tax. The tax rate for most long term capital gains is 15% with some exceptions resulting in 25% or 28%. See IRS Publication 17 for additional information.

Capital losses can be carried forward to future years to offset new capital gains when they exceed the $3,000 limit for the current year. The limit is only $1,500 if you file separately from your spouse. Finally, report capital gains and losses on Schedule D and then transfer the bottom line to your 1040 long form on line 13.

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