FACTS ABOUT CAPITAL GAINS AND LOSSES When you sell a capital asset, the sale results in either a gain or a loss. Capital assets include property such as your home - and also include investment property such as stocks and bonds and rental real estate. Capital assets also include personal property used in your business such as a vehicle, equipment, and furniture. 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. You must include all capital gains in your income. Beginning in 2013, you may be subject to the Net Investment Income Tax in ADDITION to capital gains tax and/or ordinary income tax. The NIIT applies at a rate of 3.8% to certain net investment income of individuals, estates, and trusts that have income above certain threshhold amounts. You can deduct capital losses on the sale of investment property. You cannot deduct losses on the sale of personal use property such as your home, or your personal vehicle. Capital gains and losses are either long-term or short-term depending on how long you held the property. If you held the property for more than a year, your gain or loss is long-term. If you held it one year or less, the gain or loss is short-term. You can offset capital losses against capital gains that occur in the same year. If you have excess capital losses, you can deduct them on your tax return but they are limited to $3,000 per year. If your total capital loss is more than the limit you can deduct, you can carry the losses over to next years tax return. The tax rates that apply to net capital gains depend on your income. For lower-income individuals, the rate may be 0% on some or all of their capital gains. In 2013, the maximum capital gain tax rate increased from 15% to 20%. Capital gains and losses are very complicated. You will need to file both Form 8949 and Schedule D. The IRS publishes in the instructions the amount of time it would take a lay-person to prepare these forms. Just to learn the applicable law and about how to complete the form, they estimate an average 4.5 hours for each required form. We can do it a lot quicker - and we already know the law. Give us a call.
Posted on: Wed, 12 Mar 2014 02:49:47 +0000
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