How to Calculate Capital Gains
Define capital gains., Recognize what counts as a capital asset., Understand why you need to calculate capital gains., Learn how capital losses offset capital gains.
Step-by-Step Guide
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Step 1: Define capital gains.
Capital gains refer to the increased value of an asset over time.
When the asset is sold, you compare the selling price with the original purchase price.
The difference is your capital gain.
If the asset decreases in value, it is considered a capital loss.Short-term capital gains are from assets that are held for less than one year.
Long-term capital gains are from assets that are held for a year or longer. -
Step 2: Recognize what counts as a capital asset.
Many things that you might not think of qualify as capital assets.
The IRS defines capital assets as everything you own and use for personal use, pleasure and investment.
You must calculate capital gains whenever you sell one of these capital assets.Examples of capital assets include investments such as stocks and bonds, your personal home or investment properties, household furnishings and your car.
Other capital assets include timber grown on your property, coin or stamp collections, jewelry and precious metals.
Your personal home may be exempt from taxes on capital gains if you owned it and used it as your primary residence for at least two years in the five years before you sold it and you haven’t excluded the gain on the sale of another property in the two-year period before the sale., The IRS requires you to calculate capital gains because you must pay income tax on them.
All capital gains must be reported.
The tax rate on capital gains is less than the tax rate on wages per bracket.
The amount of tax you pay on capital gains depends on your tax bracket in 2015 (this rate will change as tax bracket rates change).Those in the 10 to 15 percent tax bracket pay 0 percent on capital gains.
Those in the 25 percent, 28 percent, 33 percent, or 35 percent tax brackets pay 15 percent on capital gains.
Those in the
39.6 percent tax bracket pay 20 percent on capital gains. , If you sell something for less than what you paid for it, this is a capital loss.
You can use your capital losses from investments to reduce your capital gains.
This reduces how much you have to pay in taxes.
Also, if your total capital losses exceed your total capital gains, you can offset your ordinary income up to $3,000 in a single tax year.Amounts above this can be carried forward into the next tax year.
You cannot use capital losses from the sale of personal property to offset capital gains. -
Step 3: Understand why you need to calculate capital gains.
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Step 4: Learn how capital losses offset capital gains.
Detailed Guide
Capital gains refer to the increased value of an asset over time.
When the asset is sold, you compare the selling price with the original purchase price.
The difference is your capital gain.
If the asset decreases in value, it is considered a capital loss.Short-term capital gains are from assets that are held for less than one year.
Long-term capital gains are from assets that are held for a year or longer.
Many things that you might not think of qualify as capital assets.
The IRS defines capital assets as everything you own and use for personal use, pleasure and investment.
You must calculate capital gains whenever you sell one of these capital assets.Examples of capital assets include investments such as stocks and bonds, your personal home or investment properties, household furnishings and your car.
Other capital assets include timber grown on your property, coin or stamp collections, jewelry and precious metals.
Your personal home may be exempt from taxes on capital gains if you owned it and used it as your primary residence for at least two years in the five years before you sold it and you haven’t excluded the gain on the sale of another property in the two-year period before the sale., The IRS requires you to calculate capital gains because you must pay income tax on them.
All capital gains must be reported.
The tax rate on capital gains is less than the tax rate on wages per bracket.
The amount of tax you pay on capital gains depends on your tax bracket in 2015 (this rate will change as tax bracket rates change).Those in the 10 to 15 percent tax bracket pay 0 percent on capital gains.
Those in the 25 percent, 28 percent, 33 percent, or 35 percent tax brackets pay 15 percent on capital gains.
Those in the
39.6 percent tax bracket pay 20 percent on capital gains. , If you sell something for less than what you paid for it, this is a capital loss.
You can use your capital losses from investments to reduce your capital gains.
This reduces how much you have to pay in taxes.
Also, if your total capital losses exceed your total capital gains, you can offset your ordinary income up to $3,000 in a single tax year.Amounts above this can be carried forward into the next tax year.
You cannot use capital losses from the sale of personal property to offset capital gains.
About the Author
Jeffrey Wilson
Brings years of experience writing about practical skills and related subjects.
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