10 Facts About Capital Gains and Losses

Have you heard of capital gains and losses? You may prefer to read up on Capital Gains and Losses since they could have an affect on your income tax return. The Internal Revenue Service wishes you to know these 10 facts about capital gains and losses and how they could impact your tax filing and tax liability.

  1. Most everything you possess and use for personal purposes, pleasure or investment is a capital asset.

  2. Once you sell a capital asset, the difference between the amount you sell it for and your basis – which is normally what you paid for it – is a capital gain or a capital loss.

  3. You must document all capital gains.

  4. You can deduct capital losses only on investment property, not on property held for personal use.

  5. Capital gains and losses are classed as long-term or short-term, contingent on how long you owned the property before you sell it. If you hold it more than one year, your capital gain or loss is long-term. If you hold it one year or less, your capital gain or loss is short-term.

  6. If you have long-term gains in excess of your long-term losses, you have a net capital gain to the extent your net long-term capital gain is more than your net short-term capital loss, if any.

  7. The tax rates that apply to net capital gain are generally lower than the tax rates that apply to other income. 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 gain. Special types of net capital gain can be taxed at 25% or 28%.

  8. If your capital losses exceed your capital gains, the excess can be deducted on your tax return and used to reduce other income, such as wages, up to an annual limit of $3,000, or $1,500 if you are married filing separately.

  9. If your total net capital loss is more than the yearly limit on capital loss deductions, you can carry over the unused part to the next year and treat it as if you incurred it in that next year.

  10. Capital gains and losses are reported on Schedule D, Capital Gains and Losses, and then transferred to line 13of Form 1040.

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