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News Every Day |

Capital gains and losses

Capital gains and losses are profits and losses on the sales of your capital assets.

What is a capital gain?

What's the difference between a short-term and long-term capital gain?

  1. Short-term gains come from the sale of property owned one year or less and are taxed at your maximum tax rate, as high as 37% in 2020.
  2. Long-term gains come from the sale of property held more than one year and are taxed at either 0%, 15%, or 20% for 2020.

What is the holding period?

  • If you sold on April 15, you would have a short-term gain or loss.
  • A sale one day later on April 16 would produce long-term tax consequences, since you would have held the asset for more than one year.

How much do I have to pay?

  • Short-term profits are taxed at your maximum tax rate, just like your salary, up to 37% and could even be subject to the additional 3.8% Medicare surtax, depending on your income level.
  • Long-term gains are treated much better. Long-term gains are taxed at 15% or 20% except for taxpayers in the 10% or 15% bracket. For low-bracket taxpayers, the long-term capital gains rate is 0%. There are exceptions, of course, since this is tax law.
  • Long-term gains on collectibles—such as stamps, antiques and coins—are taxed at 28%, unless you're in the 10% or 15 % or 25% bracket, in which case the 10% or 15% rate or 25% rate applies
  • Gains on real estate that are attributable to depreciation—since depreciation deductions reduce your cost basis, they also increase your profit dollar for dollar—are taxed at 25%, unless you're in the 10% or 15% bracket.
  • Long-term gains from stock sales by children under age 19—under age 24 if they are students—may not qualify for the 0% rate because of the Kiddie Tax rules. (When these rules apply, the child’s gains may be taxed at the parents’ higher rates.)

What is a capital loss?

Can I deduct my capital losses?

  • If you have $2,000 of short-term loss and only $1,000 of short-term gain, the net $1,000 short-term loss can be deducted against your net long-term gain (assuming you have one).
  • If you have an overall net capital loss for the year, you can deduct up to $3,000 of that loss against other kinds of income, including your salary and interest income.
  • Any excess net capital loss can be carried over to subsequent years to be deducted against capital gains and against up to $3,000 of other kinds of income.
  • If you use married filing separate filing status, however, the annual net capital loss deduction limit is only $1,500.

Read more...




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