Did you know
that almost everything you own and use for personal or
investment purposes is a capital asset? Capital assets
include a home, household furnishings and stocks and
bonds held in a personal account. When a capital asset
is sold, the difference between the amount you paid for
the asset and the amount you sold it for is a capital
gain or capital loss.
Here are ten
facts from the IRS about gains and losses and how they
can affect your Federal income tax return.
everything you own and use for personal purposes,
pleasure or investment is a capital asset.
(2) When you
sell a capital asset, the difference between the
amount you sell it for and your basis – which is
usually what you paid for it – is a capital gain or
a capital loss.
(3) You must
report all capital gains.
(4) You may
deduct capital losses only on investment property,
not on property held for personal use.
gains and losses are classified as long-term or
short-term, depending on how long you hold 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 2010, the maximum capital gains rate for most
people is 15%. 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
(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.
gains and losses are reported on Schedule D, Capital
Gains and Losses, and then transferred to line 13 of
information about reporting capital gains and losses,
see the Schedule D instructions, Publication 550,
Investment Income and Expenses or Publication 17, Your
Federal Income Tax. All forms and publications are
or by calling 800-TAX-FORM (800-829-3676).